Bank Of America Mark 10-Year CGB Yield Call Lower

Bank of America note that "after a sharp rally in July, the 10-Year CGB has been consolidating in the 2.8-2.9% range over the past month. One potential trigger that can lead yields to new YtD lows would be more forceful monetary easing. Our economists believe another month of disappointing macro data will likely prompt the central bank to lower the 1-Year LPR by 10bp in Sep, followed by another 15bp cut in Q421. In sharp contrast, market consensus does not see any changes in policy rates by year-end. We think the possibility of policy rate cuts is underappreciated by the market, and recommend positioning for any surprising easing moves via a long 3-Year CGB position. The MLF operation on 15 Sep and LPR releases on 20 Sep shall be watched closely as window of opportunities for policy rates adjustments."

• "On the back of rapid slowdown in growth momentum and a stronger need for monetary easing, we mark-to-market our Q3 forecasts and revise down 10-Year CGB year-end forecast to 2.75% from 3.20%. A further decline in credit growth and faster-than-expected slowdown in export growth pose major downside risks to our revised forecasts. On the other hand, sustained high issuance of government bonds into Q4 may eventually start challenging market demand, exerting upward pressure on yield. Regulatory headlines on banks' wealth management products (WMP) also need to be watched closely in the final months of the grace period - direct impacts on rates bonds are likely to be limited, but selling activities may occur when WMPs face redemption pressures."