Chinese Yield Dynamics Apply Further Pressure To Yuan

Yield dynamics will not be aiding the yuan, with the likes of Chinese 5-Year IRS rates & 10-Year government bond yields pulling lower in recent days. We had previously noted that those rates were already more aggressively priced than the yuan when it came to the Chinese economic slowdown, based on prevailing market levels seen during late ZCS times.

• We also suggested that those rates were already at levels that probably required a more meaningful easing bias from the PBoC/increased chances of monetary loosening. The recent run of softer than expected economic data has seemingly tipped the balance on that front, at least when it comes to market perception, although most still look for RRR/targeted policy moves, as opposed to moves in benchmark rates.
• Note that state-owned media outlets have suggested that loan prime rates will remain on hold for some time owing to the NIM outlook for Chinese banks (a matter we highlighted previously), seemingly adding credence to the view of those who are playing down the chances of broader monetary easing.