Rising prices of pork in mainland China are taking a huge toll on the inflation-adjusted bond yields of the country, which is now in danger of becoming negative for seven years for the first time.
Host to half of the globe's hogs, African swine fever has struck the country's economic infrastructure hard - this year more than 200 million pigs have been grafted.
That sent the cost of pork, an important element of Chinese cuisine, to skyrocket, and as a result, has pushed its consumer price index in September to hit 3 percent increases.
Given Monday's 3.21 percent output on ten-year government bonds, the highest since July 1, this means bondholders' return of investment after accounting for inflation is a measly 0.2 percent.
Although extraordinarily low yields have become the standard throughout the developed world- adjusting for inflation or not- it is uncommon in emerging markets. Like China, South Korea's 10-year securities offer real yields of 2 percent. India's bondholders earn more than 2.5 percent despite paying for almost 4 percent of inflation.
And unlike the United States, Japan, and other issuing entities, China is not selling inflation-linked bonds, boosting lock-step returns with a gage of consumer prices to investors.
That leaves domestic investors suffering the burden of the loss in buying power from the latest increase in inflation. And they are likely to take the cudgels without demanding greater compensation, market analysts said.
The bond market has a strong grasp of the situation, and "that this is purely based on supply, not wage inflation in the economy," Edmund Ng, chief investment executive at the Eastfort Asset Management Co, said.
Nonetheless, Mao Shengyong, spokesperson for the National Bureau of Statistics, on Friday said that the prices of pork would gradually return to a "normal level" and played down worries about inflation.
Through increasing loans and incentives, the government has made huge efforts to revive local output to support hog farming. But it may take time to minimize costs. Bloomberg Economics reported in September that by December this year, inflation could hit 3.5 percent.
Around 10 years ago, patterns in the country's bond yields seemed to be in consonance with those for deflation, but that connection somehow fell around 2012 to 2013, when the economy adjusted its double-digit growth firmly.
Investors have stepped up their focus on the actions of government regulators. Today, the notion is that China's central bank would look past the inflation brought about by pork.
