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  • We have seen that even though inflationary pressures have continued to intensify in the EM world (Citi EM inflation surprise index standing at its highest level since September 2008), China long-term bond yields have been consolidating lower as the uncertainty over the economic recovery has been rising.
  • China 10Y bond yield peaked in November 2020 (3.36%) and has been constantly retracing lower since then as 'liquidity' has been contracting sharply (China TSF 12M Sum yearly change down from over 10tr CNY in October 2020 to 0 in June 2021).
  • It is important to also note that the Chinese economic activity seems to have peaked in February according to a range of financial and economic indicators (i.e. Li Keqiang Index).
  • China 10Y yield has been retracing lower this week, and is gradually approaching its key support at 2.91%, which corresponds to the 50% retracement of the 2.46% - 3.36% range and the low of its LT downward trending channel.
  • A break below that level would open the door for a move down to 2.85%.

Source: Bloomberg/MNI