(April 7): China’s government bonds surged, pushing the benchmark yield toward to the lowest on record, as investors rushed for haven assets due to concern over US tariffs and monetary easing bets.

The yield on China’s 10-year sovereign notes slumped eight basis points to 1.64%, set for the biggest drop since September, according to data compiled by Bloomberg. Futures on 30-year bonds gained the most on record before trimming the move.

The rally was fuelled by surging demand for safer assets due to fears that higher US tariffs would trigger a global recession and hurt China’s already fragile economy. People’s Daily, the flagship newspaper of the Communist Party, said in a front-page commentary that Beijing has room to ease borrowing costs and reserve rules for lenders if needed to defend its economy.

“There is a high probability for a rate and or required reserve ratio cut in the near term,” said Lynn Song, Greater China chief economist at ING Bank NV.

“The People’s Bank of China (PBOC) has been holding pat for the past few months, waiting for a suitable timing to ease policy, the eruption of the trade war and market turmoil certainly would seem like a good excuse to ease,” he said.

Fears of a further escalation in trade tensions is growing, after China on Friday announced commensurate levies on all American goods and export controls on rare earths. That prompted the US president to deride Beijing’s reaction as the “wrong” move. A Weibo account affiliated with state-run China Central Television later said the nation is ready to “fight till the end”.

Chinese stocks plunged in risk-off markets. A key gauge of the nation’s shares listed in Hong Kong tumbled as much as 10%, putting it on track for a correction. The onshore yuan fell to a two-month low, after the PBOC set the reference rate for the currency at the weakest level since December.

“There are chances of interest rate cuts and an RRR cut within this quarter, and even if outright easing is not materialising imminently, Chinese government bonds can benefit from safe haven flows,” said Frances Cheung, head of FX and rates strategy at Oversea-Chinese Banking Corp (OCBC).

“We will watch if 1.6% is broken before eyeing the next range,” she said.

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