10Y Bond Yield Breaks Below 100DMA Support

• After retracing sharply higher in the first half of October to hit a local high of 3.05% on Oct 18 (highest level since July), China 10Y yield has been retracing lower in the past two weeks, breaking below its 100DMA (2.95%) on Monday.
• We saw that the risk-on environment in October, mainly driven by a sharp drop in price volatility and some JPY depreciation, generated a rally in risky assets and a bear consolidation in LT bonds.
• However, the situation seems to have reversed in the second half of last month, therefore leading to a retracement in LT bond yields.
• China equities have also been consolidating lower in the past two weeks, with the Hang Sang Index down nearly 5% since its mid-October high.
• Yield curves in some EM economies have been flattening in recent weeks as central banks have maintained their aggressive tightening cycle to curb the inflationary pressures despite the surging uncertainty.
• Next level to watch on the downside on China 10Y yield stands at 2.91%, which corresponds to the 50% retracement of the 2.46%-3.36% range (2020/21 low high), followed by 2.90% (50DMA).
• On the topside, first resistance stands at 3%, followed by 3.0160% (38.2% Fibo, LT downward trending resistance line).

Source: Bloomberg/MNI