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10Y Yield Breaking Above 200DMA?

  • We previously saw that China 10Y yield has not followed the global retracement in LT bond yields in recent months despite inflationary pressures remaining elevated globally.
  • Hence, the surge in US LT bond yields since the start of the year has led to a sharp fall in the China 10Y bond yield premium, which plummeted from 1.25% in the beginning of January to -0.25% today (reaching a low of nearly -70bps in mid June).
  • The disappearance of Chinese ‘carry’ could have been one of the drivers of CNY weakness in Q2 2022, and the negative bond yield premium could continue to weigh on the yuan in the medium term.
  • Interestingly, China 10Y yield has been slowly rising in the past two weeks, currently trading slightly above the 200DMA (2.8360%).
  • The 200DMA has acted as a strong resistance in the past year; China 10Y yield rejected it in the end of April.
  • Therefore, could a breakout of the 200DMA increase the selling pressure on Chinese bonds in the near term?
  • Flows data have been indicating that foreigners have become net sellers of CNY bonds in recent months.

Source: Bloomberg/MNI

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