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10-year yields hit 1.9750%; futures near record high

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Rally expected to run in 2025 on cautious growth outlook

(Recasts with lowest on record)

SHANGHAI, Dec 2 (Reuters) - China's 10-year yield broke

below 2% to hit its lowest point on record on Monday, breaking a

psychological barrier as a sputtering economy and bets on

further rate cuts drive investors into the safety of bonds.

Prices in China's bond market have been on a decade-long

rally - one that kicked into a higher gear roughly two years ago

as the country's property sector woes and weakness in the stock

market combined to prompt a flood of funds flowing into bank

deposits and the debt market.

A ban on offering preferential deposit rates on Friday was

the latest signal that rates are staying low.

Benchmark 10-year yields dropped 5 basis points

(bps) to 1.9750% on Monday. That's the lowest point in data from

China Central Depository & Clearing that

stretches to 2002 and marks only a handful of times that the

yield has been below 2%.

Despite efforts from authorities to restrain the bond rally,

including episodes of central bank selling and an increase in

issuance, investor appetite seems insatiable and analysts expect

the rally to continue into next year.

"Fundamentals are still very weak. Policies are merely

support to prevent the economy from a hard landing, not a strong

stimulus," said Ke Zong, a former portfolio manager at hedge

fund Mingshi.

He added that previously hesitant funds and institutions

were still under-allocated, and insurance companies often

allocate in advance before the new year starts, driving down

yields.

In addition to a cautious view on China's growth outlook,

the likelihood of U.S. tariffs on China imports meant China

rates should rally next year, Morgan Stanley strategists said in

a note, adding that the bank's economists expect China's central

bank to cut the policy rate by 40 bps by the end of the first

quarter.

China's 10-year treasury futures, which move

inversely to yields, jumped 0.4% on Monday to flirt with record

highs. The 30-year treasury yield fell nearly 4 bps

to 2.16%.