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China Bond Bulls Taking Charge of the Front End.

CHINA RATES
  • The short end of the China Government Bond curve has continued to rally with new measures from authorities providing support and economic data softening.
  • The 2-year government bond closed yesterday at 1.48%, on new lows for the year yet above the lows of April 2020.
  • The move lower was echoed in 5-year government bonds.
  • On Saturday a China data release showed that manufacturing in China is moderating, a likely precursor to further policy action.
  • Last week saw the PBOC intervening in bond markets in action appeared focused on the steepness of the curve.
  • The PBOC advised that it had undertaken purchases in the short end of the government bond curve whilst selling longer dated ones in August.
  • The Central Bank has indicated that in August, it purchased CNY100bn of government bonds.
  • These actions appear focused on reducing funding costs to support the economy, ahead of any potential cut in policy rates.
  • With the outlook for the Chinese economy uncertain, it is likely that we will see ongoing intervention in a variety of measures into year end with the bond bulls remaining in charge for now.
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