Bond yields plummet as investors hold out for interest rate cut

China:Yields on China's riskiest bonds have fallen to their lowest level in more than a year as investors bet the government will cut interest rates to counter slowing economic growth.

The yield on AA-rated one-year bonds fell to 4.89 per cent last week, the lowest since February 2011, according to data from Chinabond, the nation’s bond clearinghouse. Yields on corporate debt in China graded AA by local rating companies are equivalent to those for US notes ranked below B, according to China International Capital, the country’s biggest investment bank.

Non-investment-grade US securities pay an average 7.91 per cent, Bank of America Merrill Lynch indexes show. One-year interest-rate swaps tumbled for a third week and are poised for the biggest monthly decline since September on speculation that Premier Wen Jiabao will lower lending rates and expand stimulus to support growth.

Manufacturing is set to fall for a seventh month as Europe's crisis crimps demand. It is predicted the nation's biggest banks may miss loan targets for the first time in at least seven years. "Monetary easing measures will help banks to extend more loans, which will help lower-graded companies," said Qiu Xinhong, a bond fund manager at Golden Eagle Asset Management, which manages ¥6 billion ($946 million) of assets. – (Bloomberg)