CGB Yields Back Towards YtD Lows On 25bp LPR Cut

Benchmark Chinese yields have ticked lower late in the day, with the impact of the larger than expected 25bp reduction in the 5-Year LPR fixing eventually filtering through.

• Yields are 2-3bp lower across the curve, with the belly outperforming.
• The major metrics move back towards ’24 yield lows, although YtD extremes were not tested.
• The lowering of the 5-Year LPR fixing provides another leg of support for the property sector.
• Still, this will only really impact new mortgage deals in the immediate term.
• Existing Chinese mortgage rates only tend to reset once a year, usually on/around 1 January.
• This move comes after a run of deposit rate cuts at the end of ’23/in early ’24.
• The perceptions re: a lack of immediate impact on the housing market and continued post-LNY liquidity drains via the daily PBoC OMOs probably limited the move in the initial aftermath of the LPR fixings.
• The lack of movement in the 1-Year LPR fixing probably points to a want to preserve Bank NIM.
• 7-day repo rate fixed 10bp lower today.
• Chinese policy settings remain tilted to easing mode, given the well-documented areas of economic worry.
• Most still expect further benchmark interest rate & RRR cuts during ’24, although there is plenty of variance in the calls re: scope of cuts & timing.