10Y Yield Remains ‘Low’ Despite Strong Foreigners Outflows and Rising Inflation

• Sell-side analysts have been constantly reviewing China 2022 growth forecast to the downside in recent weeks as the severe Covid lockdown policies imposed by the government have been significantly weighing on the domestic real economy.
• We saw that GS recently cut its 2022 GDP growth forecast to 4% from 4.5%.
• Despite consumption growth expected to remain weak in the coming months due to elevated uncertainty, China officials remain committed to achieve a 5%-5.5% growth target in a challenging year with the upcoming 20^th Party Congress in the fall.
• Alternative measures of growth (i.e. Li Keqiang, electricity consumption…) have been pricing in a significant downward revision in growth expectations; economic data showed this week that industrial production dropped by 2.9% YoY in April (vs. 0.5% rise exp.) and retail sales plummeted by 11.1% YoY.
• CBIRC Mao Hongjun mentioned at a briefing that China banks are facing pressure of NPL rebound due to Covid (though there are currently estimated to be at reasonable level of 1.82%).
• China 10Y yields keeps trading at relatively low level despite the strong foreigners outflows and the elevated inflationary pressures.
• The 10Y yield is currently testing the 2.8040% level, which represents the 61.8% Fibo retracement of the 2.4610% - 3.3580% range.
  • Next support to watch on the downside stands at 2.74%.
• On the topside, key resistance stands at 2.8460% (200DMA).

Source: Bloomberg/MNI