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China's Central Bank Halts Bond Purchases to Support Yuan, BTC Holds Under $95K

BY Coindesk | ECONOMIC | 03:14 AM EST By Omkar Godbole

On Friday, China's central bank took steps to support the yuan, which has been losing ground, with its depreciation being viewed as a potential tailwind for bitcoin (BTC).

The People's Bank of China announced that it will stop purchasing government bonds this month as their demand now overshadows the supply.

Experts said the move reflects policymakers' discomfort with the sliding bond yields, which move in the opposite direction of prices, and the resulting depreciation in yuan.

The yield on the benchmark 10-year Chinese government bond dipped below 1.6% early this week, marking a staggering 100 bps decline on a 12-month basis, according to data source TradingView.

Meanwhile, its U.S. counterpart rose to 4.7%, the highest since November 2023, widening the U.S.-China yield differential in favor of the USD.

As such, the CNY slipped to 7.32 per USD, extending its three-month losing streak led in part by concerns of tariffs under President-elect Donald Trump's tenure set to begin on Jan. 20.

Early this week, analysts said the declining yuan could result in a capital flight, some of which could find its way into the crypto market and add to BTC's bull momentum.

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In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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