Today’s markets analysis on behalf of Konstantinos Chrysikos Head of Customer Relationship Management at Kudotrade
6th March 2025
The Chinese yuan stabilized after two consecutive days of rally, while China’s 10-year government bond yield remained steady above 1.76%. The yuan’s stability is supported by the People’s Bank of China (PBoC) efforts to manage currency volatility amidst external pressures. While the fiscal stimulus measures aimed at boosting consumption may provide near-term support, U.S. trade tensions and weak domestic demand could limit the yuan’s substantial appreciation going forward.
Beijing has increased fiscal spending through higher debt issuance, raising funds for state banks to address weak demand and external pressures. This move, whilst designed to stimulate growth, could create long-term risks for the Chinese currency. The higher debt issuance could raise concerns over fiscal sustainability, potentially triggering capital outflows weighing on the yuan. Furthermore, increased debt may push bond yields higher if investors demand a higher risk premium.