***Attention is gathering in FI markets as....>

BONDS: ***Attention is gathering in FI markets as to what is happening with the

CNY as it continues to appreciate. Last night, the official fixing was also set

much stronger at 6.7307 vs 6.7529 overnight; it was the strongest fixing since

Oct. 18, 2016.

- Will this lead to a rise in Chinese FX reserves and subsequent investment in

overseas assets such as Treasuries and EGBs?

- BAML economists make an important point "The success of capital controls is

evidence by the modest recovery in China's balance of payments and FX reserves".

They note that the volatility of PBoC liquidity management is increasing costs

that inhibit capital inflows. They also talk of the Trump-China trade dynamic

that could mean that China is more likely to allow the CNY to appreciate.

- In the past, a surging CNY was accompanied by an acceleration in FX reserves,

something that does not appear to be happening in the current period of

strength.