BofA: Double Whammy Of Elevated Issuance And Tight Funding

Bank of America write “there has been a lot of market focus on China's fiscal policy and government bond issuance outlook.”

• “Since early Oct, 19 provincial governments have announced plans to issue special refinancing bonds. The NPC Standing Committee is scheduled to meet and review a bill that allows the State Council to pre-release local government debt quotas.”
• “Against the backdrop of elevated net supply and tighter funding conditions, CGBs 2s10s curve has bear-flattened to the lowest level since 4Q20. While we wouldn't rule out the possibility of the spread dropping further by another 5-10bp, the next big move should probably be curve steepening.”
• “For front-end bonds to rally, we probably need to see the catalyst of improving liquidity conditions, which in turn is contingent on FX moves and the PBoC's policy reaction function.”