China's bond market is responding positively to a recent adjustment made by the central bank in how it injects liquidity into the financial system, as investors believe this move could lead to reduced funding expenses and help maintain low yields. Government bond futures, particularly the 10-year contracts, surged to their highest level in over two weeks. The adjustment allows qualified banks to borrow from the People's Bank of China at variable interest rates through the medium-term lending facility instead of a fixed rate. This change aligns borrowing costs with market rates, which have been consistently lower than the official rate of the facility. This alteration is seen as beneficial for government bonds, as it encourages Chinese commercial banks, major players in the debt market, to use borrowed funds for investing in fixed-income securities. The shift implies a shift towards a more relaxed monetary policy stance, marking a departure from recent efforts by the central bank to tighten liquidity. Analysts speculate that this minor rate adjustment signals a shift from a previously hawkish monetary stance to a more accommodative one, especially in light of potential risks linked to additional US tariffs. The bond market's response to this development was evident as Chinese 10-year bond futures initially surged before moderating, while 30-year debt contracts also saw gains. Meanwhile, the yield on 10-year notes in the cash market rose slightly to 1.82%. There has been a growing demand for an interest rate cut by the central bank, as market funding costs have consistently been lower than the existing MLF rate of 2%. For instance, the interest rate on one-year AAA-rated negotiable certificates of deposits, a gauge of short-term borrowing expenses between banks, currently stands at 1.9%.