Bank Of America: PBoC Injected A Dose Of Confidence Via MLF

Bank of America research note that "on 16 Nov, the PBoC provided CNY800bn worth of 1-year loans to banks at 2.95% (unchanged) via its medium-term lending facility, which was the largest monthly operation in 2020 in gross terms. This olive branch from the PBoC is likely to somehow alleviate medium-term funding pressure in the banking system and, equally importantly, reassure the market of its accommodative stance on liquidity. We expect the 7d reverse repo (OMO) rate to continue to serve as an anchor to short-term market rates, unless there is a shift in the tone or language in the upcoming 3Q Monetary Policy Executive Report. On CGBs, as the 10y yield reached a new YTD high we see limited room for further upside in the near term, given 1) continued economic recovery has already been fully priced in; and 2) government bonds supply has peaked out - the issuance size of key tenor CGBs is likely to reduce meaningfully in December."