Chinese yuan, bonds fuel in tandem amid fears of foreign sell-off

(Bloomberg) — China’s government bonds and the yuan fell together amid speculation that foreign hedge funds ramped up liquidation of the country’s assets after stock prices deepened.

Yields on the most actively traded 10-year Treasury bond rose seven basis points to 2.94% Tuesday afternoon, the most in a year. The offshore yuan fell as much as 0.6% to 6.52 per dollar, the first since April from the key level of 6.5. Equity benchmarks in China and Hong Kong continued to fall, with the Hang Seng index plummeting as much as 5.5%.

“There is a widespread rumor in the market that some US funds are aggressively selling assets from Hong Kong and China as the US may restrict investment in these places,” said Li Kunkun, a trader of Guoyuan Securities Co. checking whether it is true or not, the market fears that foreign capital will flow out of the Chinese stock and bond market on a large scale, so sentiment is badly hurt.”

In China, risk aversion has emerged after a sudden policy change on education companies followed a crackdown on technology companies, raising concerns across many sectors in the stock markets. Restrictions in real estate financing and signs of an expanding Covid-19 outbreak are also weighing on growth expectations.

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