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10Y Yield Breaks Below Key Support at 2.6730% Following PBoC Rate Cuts

CHINA
  • This week, China officials decided to cut interest rates as new data showed that the economic activity has been losing steam significantly due to renewed Covid lockdowns and uncertainty on the property market.
  • The PBoC cut its 7D reverse repo rate by 10bps to 2% for the first time since January.
  • Even though the move took investors by surprise, money market rates have been pricing in further cuts from PBoC for a while as the 7D IB repo rate has been trading significantly below the policy rate for a few months (see link here: https://marketnews.com/money-market-rates-pricing-in-more-cuts-but-china-officials-reluctant-to-ease-further).
  • Empirical studies have shown that the 7D repo rate has historically been a reliable indicator when it comes to future PBoC moves.
  • Hence, the rate cut led to a drop in China LT bond yields, with the 10Y breaking below the 2.6730% ST support level, which corresponds to the 76.4% Fibo retracement of the 2.4610% - 3.3580%.
  • Next ST Support to watch stands at 2.60% (May 2020 lows).

Source: Bloomberg/MNI

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  • This week, China officials decided to cut interest rates as new data showed that the economic activity has been losing steam significantly due to renewed Covid lockdowns and uncertainty on the property market.
  • The PBoC cut its 7D reverse repo rate by 10bps to 2% for the first time since January.
  • Even though the move took investors by surprise, money market rates have been pricing in further cuts from PBoC for a while as the 7D IB repo rate has been trading significantly below the policy rate for a few months (see link here: https://marketnews.com/money-market-rates-pricing-in-more-cuts-but-china-officials-reluctant-to-ease-further).
  • Empirical studies have shown that the 7D repo rate has historically been a reliable indicator when it comes to future PBoC moves.
  • Hence, the rate cut led to a drop in China LT bond yields, with the 10Y breaking below the 2.6730% ST support level, which corresponds to the 76.4% Fibo retracement of the 2.4610% - 3.3580%.
  • Next ST Support to watch stands at 2.60% (May 2020 lows).

Source: Bloomberg/MNI