SHANGHAI/SINGAPORE, April 24 (Reuters) - Yields on China's government bonds rose on Wednesday after the central bank warned that sharp gains in long-dated paper failed to reflect future economic growth prospects.
A stuttering recovery in the world's second-biggest economy has underpinned a record-breaking rally in Chinese government bonds over the past few months, with yields on 30-year bonds down more than 40 basis points this year.
The sharp moves prompted the central bank to warn that yields might have deviated from long-term economic growth expectations.
"The central bank is optimistic about the prospects for economic growth in the long term," a senior official at the People's Bank of China (PBOC) told Financial News, a PBOC-backed publication.
The official also noted supply and demand dynamics at play and said investors need to pay close attention to interest rate risk as long-dated bonds are sensitive to fluctuations in rates.
The comments lifted yields on the benchmark 30-year and 10-year government bonds, up about 4 basis points (bps) and 2 bps, respectively, in early trade.
China's 10-year bond yields have dropped more than 30 bps this year.
Treasury futures fell across the board but the moves were more pronounced on long-dated futures contracts. The 30-year treasury futures for June delivery were down around 0.88%, while the 2-year futures were off just 0.04%.
Yields have an inverse relation with bond prices.
Onshore investors interpreted the PBOC official's comments as a signal that authorities are keen to maintain reasonable slope of the yield curve, UBS analysts said in a note.
"We maintain a steepening bias to the curve, given pending supply and expected economic recovery," said Xing Zhaopeng, senior China strategist at ANZ.
(Reporting by Shanghai Newsroom; Editing by Tom Hogue and Shri Navaratnam)
