On Friday, China's central bank implemented measures to support the yuan, which has been weakening. The People's Bank of China (PBOC) declared it would stop acquiring government bonds this month due to an imbalance where demand exceeds supply.
Key Insights:
- The PBOC is putting a halt on government bond purchases.
- This strategic move appears to be aimed at addressing the decline in bond yields and the yuan's depreciation.
- Earlier in the week, analysts mentioned that the falling CNY might positively impact bitcoin (BTC).
Experts suggest that this action indicates policymakers are uneasy about the dropping bond yields, typically inversely related to price movements, coupled with the yuan's depreciation. The yield on the benchmark 10-year Chinese government bond recently fell below 1.6%, reflecting a significant decline of 100 basis points over the past year, according to TradingView data.
Conversely, the yield for its U.S. counterpart rose to 4.7%, marking the highest level since November 2023, widening the yield gap favoring the USD.
As a result, the CNY fell to 7.32 per USD, extending a three-month downward trend, partly fueled by concerns about tariffs following President-elect Donald Trump's upcoming inauguration.
Earlier this week, analysts suggested that the diminishing yuan could trigger capital flight, with potential inflows into the crypto market, thereby enhancing BTC's bullish momentum.
