TRADERS in China are flocking to sovereign bonds as an expanding regulatory crackdown and concern that growth is slowing pressure risk markets.

The yield on benchmark 10-year government debt yesterday fell to the lowest in a year as stock gauges declined by more than 3 percent. High-yield dollar bonds dropped as much as 0.5 cents on the dollar.

A policy change on education companies coming on top of crackdowns on technology firms, curbs in financing for the property sector, and signs of an expanding COVID-19 outbreak are building a narrative that a wide swathe of Chinese assets are under threat. Meanwhile, some July economic indicators show signs of weakness.

“The market is concerned about regulation tightening which might drag down the growth in coming quarters,” said Hao Zhou, senior emerging markets economist at Commerzbank AG in Singapore.

“The policy uncertainties derived from the crackdown on private tuition has also dampened the sentiment.”

Stock traders are finding fewer options to invest in, with concerns leaping from technology to property to education and consumer sectors.

Meanwhile, signs of a cash crunch at China Evergrande Group has stoked contagion fears and hurt high-yield credit.

The shift to risk-off trading is adding to a rally in China bonds, which began earlier this month on expectations that authorities will ease liquidity to support growth.

The People’s Bank of China is forecast to cut the reserve requirement ratio for banks once more this year after a reduction in July, according to a survey of economists. (SD-Agencies)