The yield on ten-year US treasury bonds jumped to 3.23 percent last week, marking its highest point since May, 2011. How will China's bond markets respond to the robust offer from the US? 

The yield on China's ten-year treasury bonds had settled between 3.4 percent and 3.7 percent as of the end of September, down from the range of 3.5 to 3.6 percent for the same period last year. 

Yang Zhongning, an Investment Consultant at Industrial Securities, attributed this year's bond downturn to rising inflation, but denied the opinion that pressures are intense enough to shake the overall performance of China's bond market. 

“Both the CPI and the PPI are facing increases in the second half this year, and that could lead to concern about increased interest rates. According to past experience, there are usually frequent fluctuations in bond markets in the fourth quarter, mainly due to extensive policies changes. I think there may be some ups and downs this year too, but the government's prudent monetary policy won't allow interest rates to jump much,” Yang said.

Yang added that the weekend announcement of the fourth cut in banks' Reserve Requirement Ratios this year might not necessarily invite huge cash flows into bond markets.

In addition, he believed that China will now welcome more overseas issuers of RMB-denominated bonds. 

Previously only the International Development Agency could issue RMB bonds in China. But last month's announcement by the central bank and Finance Ministry has widened the scope of entry to more overseas institutions. Now overseas governments, banks, and non-financial companies are all allowed to issue bonds here. 

Zhao Su, Senior Analyst at Hedge Funds Cloud considered this new move as a boost to the market.

“There have been some risks come to light in the bond markets this year, partly because of inappropriate credit ratings and issuance procedures. Overseas bond issuers, however, have relatively higher credit ratings, the risks are better controlled. Therefore, domestic issuers should learn from the credit ratings from their overseas counterparts,” Zhao noted.