CHINA’S government bonds — the world’s best performing sovereign notes so far this year — may have room to advance even further.

The securities will be supported by more monetary easing and stronger safe-haven demand amid lingering trade tensions, record corporate bond defaults and dropping stocks. The yield on 10-year sovereign notes has tumbled 51 basis points in 2018, while the costs on similar debt of most other major economies rose. Chinese yields are set to fall 10 basis points this week, the biggest drop since April.

Policymakers have cut the reserve requirement ratio four times this year and encouraged lending to cash-strapped private companies as the economy slows and the trade conflict with the United States escalates. Despite this, October’s readings of credit growth and the manufacturing purchasing managers index trailed analyst forecasts. Chinese bonds were among the worst performers in the world last year due to an official deleveraging campaign.

“China’s growth could slow further as the stimulus measures fail to kick in immediately, and that will push sovereign yields even lower,” said Liu Dongliang, a senior analyst at China Merchants Bank. (SD-Agencies)