China 30-year bond futures set for biggest weekly drop in 10 months

SHANGHAI, July 25 (Reuters) - China's ultra-long-dated government bond futures are poised for their steepest weekly decline in 10 months, implying higher bond yields, as a rally in equity and commodity markets drew investors' interest away from the safety of fixed income.

Chinese 30-year treasury futures for September 2025 delivery CTLc1 were down nearly 2%, set for the biggest weekly loss since September 2024, while 10-year futures CFTc1 dropped 0.5%.

The jump in yields, owing to the drop in bond prices, came after top leaders pledged this month to step up regulation of aggressive price-cutting by Chinese companies, as the world's second-biggest economy struggles to shake off persistent deflationary pressures.

The Shanghai Composite Index .SSEC rose above 3600 points this week, the highest level since October 2024.

"The recent surge in commodity prices, driven by supply-side constraints, has sparked a short-term shift in risk appetite and raised concerns that the central bank may turn more attentive to inflation. This could cause some near-term volatility in bond yields," said analysts at Caitong Securities.

The most active China coking coal contract DJMcv1 was up more than 30% this week.

However, Caitong analysts said without a concurrent rebound in aggregate demand, such price increases were unlikely to be sustained, and monetary policy tightening remained unlikely.

Until this week, yields on China's sovereign bonds had hovered near record lows for much of the past month, supported by mixed economic data and persistent policy easing expectations.

Bond funds are facing mounting redemption pressure. On Thursday, bond mutual funds saw their largest single-day outflow since September 2024, according to Huaxi Securities.

Ten-year CN10YT=RR and 30-year bond yields CN30YT=RR were up 7 basis points and 7 bps this week, respectively, to 1.73% and 1.96%.