DBS Group Research economist Samuel Tse has analyzed the recent steepening of the Chinese Yuan (CNY) yield curve, attributing the move to a ceasefire between the United States and Iran and stronger-than-expected economic growth in China during the first quarter of the year [1]. China's economy expanded by 5% year-on-year in Q1, buoyed by resilient external demand and a continued rebound in industrial activity [1]. The Purchasing Managers' Index (PMI) is expected to remain resilient at 50.3 in April, supported by improving high-frequency indicators [1]. Industrial activity has shown further signs of recovery, with cement clinker and electric furnace utilization rates rising by 2.4 percentage points and 1.0 percentage point, respectively, and higher operating rates at major steel mills [1].
While the impact of the recent oil shock has been largely contained within energy-related sectors, with operating rates at petroleum asphalt plants declining and PTA load rates dropping from 89.4% in March to 75.7% in April month-to-date, broader industrial activity has not shown significant spillover effects, indicating limited transmission beyond oil-linked industries at this stage [1].
On the financial side, onshore bond demand remains robust. Northbound Bond Connect turnover reached a record CNY1.22 trillion in March, with average daily volumes rising to CNY55.6 billion, both marking all-time highs [1]. Additionally, EPFR data indicates that China bond funds saw USD1.6 billion of inflows in the first week of April, reflecting continued offshore demand for Chinese bonds [1].
Given this backdrop of stable but uneven growth momentum, the People's Bank of China (PBoC) is expected to maintain an accommodative policy bias through liquidity operations, while refraining from aggressive rate cuts [1].
CONCLUSION
China's Q1 economic performance and strong bond inflows have supported a steepening CNY yield curve and reinforced expectations for a measured, accommodative stance from the PBoC. Market participants are likely to interpret these developments as a sign of stability, with limited spillover from energy sector shocks and continued investor interest in Chinese bonds.