Central Bank of China Pauses Bond Acquisitions to Strengthen Yuan, BTC Stays Below $95K

On Friday, China’s central bank took action to stabilize its currency and halt the falling bond yields, signaling growing concerns over the economic situation. The People’s Bank of China (PBOC) announced it would suspend bond purchases for the rest of the month, acknowledging that demand for bonds has now outpaced the available supply.

This move comes after the benchmark 10-year Chinese government bond yield dropped below 1.6%, marking a significant 100-basis-point decline over the past 12 months, according to data from TradingView. Bond yields and prices have an inverse relationship, and the PBOC’s decision reflects its discomfort with the ongoing drop in yields, which has been accompanied by a depreciation of the yuan.

In contrast, U.S. government bond yields have risen sharply, with the 10-year yield reaching 4.7%, the highest level since November 2023. This has caused the yield gap between China and the U.S. to widen, further pressuring the yuan. The Chinese currency slipped to 7.32 per USD, continuing its downward trend for the past three months.

As a result of the yuan’s decline, analysts predict there could be a capital outflow from China, with some of that capital potentially being diverted into cryptocurrencies like Bitcoin (BTC). The move to buy Bitcoin could be seen as a hedge against a weakening yuan, further fueling bullish sentiment in the cryptocurrency market. The uncertainty surrounding China’s economic policies, particularly under President-elect Donald Trump’s administration, could accelerate this shift into digital assets.