On Friday, the People’s Bank of China (PBOC) implemented a new strategy to stem the slide in the yuan, which has been struggling in recent months. The central bank announced that it would halt its bond purchases for the remainder of the month, a move aimed at curbing the falling bond yields and supporting the yuan’s value.
This decision came in response to the sharp decline in the yield on China’s 10-year government bonds, which fell below 1.6% earlier this week, reflecting a significant drop of 100 basis points over the past year, according to data from TradingView. With bond yields moving in the opposite direction of prices, the PBOC’s move signals its concerns over both the bond market’s performance and the yuan’s depreciation.
Meanwhile, the yield on U.S. government bonds has risen significantly, with the 10-year yield climbing to 4.7%, the highest it has been since November 2023. This widening yield gap between China and the U.S. is further pressuring the yuan, which recently fell to 7.32 per USD, extending its three-month losing streak.
Analysts suggest that this weakening yuan could lead to capital flight, with some of the outflow potentially flowing into the cryptocurrency market, particularly Bitcoin (BTC). This shift could provide additional bullish momentum for BTC, as investors seek refuge from the yuan’s decline by diversifying into digital assets. As the uncertainty surrounding global trade and the potential economic policies of President-elect Donald Trump loom large, the crypto market remains an appealing option for capital preservation.
