Bank of America: Carry On The Outperformance Into 2022

Wednesday saw Bank of America note that “China rates had an impressive performance during 2021, with characteristics of low volatility, low correlation with global rates markets, and strong returns. Entering into 2022, we expect CGBs to continue to outperform developed markets, underpinned by stiff growth headwinds (especially in H1), and an accommodative PBoC. We like long 2-Year CGB vs. short 2-Year U.S. Tsys. Similar to 2021, we expect China rates to trade in a relatively narrow range in 2022, with the 10-Year CGB fluctuating between 2.65-3.15%. However, the mean yields and upper bound of the range shall continue to trend down, guided by lower policy rates. In-line with our economists' quarterly GDP forecast profile, we expect yields to remain low in H1 before rebounding moderately in H2 on improving economic fundamentals.”