China Bonds Cheapen Ahead Of CPI & PPI Data Tomorrow, Fitch: Debt Outlook To Negative

Chinese Government Bonds are dealing 2-4bps cheaper across benchmarks, but little changed after Fitch revised its outlook on the nation’s sovereign debt to negative (See BBG link).

• (Bloomberg) China’s debt problem and property crisis are well known and understood by market participants, so there should be little market impact from Fitch’s outlook cut, said Michelle Lam, economist at Societe Generale.
• Notwithstanding today’s cheapening, the extent of the recent local bond market rally remains in focus given recent comments from the PBoC around monitoring long-term interest rates amid the rebound in growth. The next litmus test for local bonds will come tomorrow with the CPI and PPI due for March.
• (Bloomberg) The recent chatter about Beijing adopting quantitative easing is misplaced. Such a move is at odds with President Xi Jinping’s goal to build a financial system that is “fundamentally different” from the West. Instead, Beijing may be concerned that a deluge of bond supply may destabilize the nation’s debt market, which is showing signs of overheating. (See link)