David Edwards
The People’s Bank of China (PBOC) made the crucial announcement on Friday to halt the purchase of government bonds this month in an effort to stabilize the yuan, which has depreciated significantly. Policymakers’ worries about falling bond yields and their effect on the currency are reflected in the move.
Chinese government bond demand has risen faster than supply. According to TradingView, this caused the yield on the benchmark 10-year Chinese government bond to drop below 1.6% earlier this week, marking a significant 100 basis point drop over the previous 12 months.
U.S. Treasury yields, on the other hand, have increased significantly; the 10-year yield has risen to 4.7%, the highest level since November 2023. The pressure on the yuan has increased due to this increasing yield difference, and it has now fallen to 7.32 versus the USD for the third consecutive month.
Market and Bitcoin Strategic Implications
Fears of capital flight have been aroused by the yuan’s depreciation, and some analysts believe that part of these outflows may go into cryptocurrencies like Bitcoin (BTC). Geopolitical unpredictability and a declining value of the yuan might make Bitcoin a more attractive alternative asset and possibly increase market bullishness.
Additionally, market players are keeping an eye on more general economic and policy aspects, such as prospective tariffs from the administration of President-elect Donald Trump, which takes effect on January 20. These actions might worsen the yuan’s problems and have an even greater impact on the dynamics of trade between the US and China.
The PBOC’s most recent moves demonstrate the fine balancing act China must perform in order to manage economic pressures and preserve currency stability.
