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CNH Steady, Underperforming Broader USD Weakness, Higher Onshore Yields Evident

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USD/CNH sits little changed, last near 7.2600. It is a similar backdrop for spot USD/CNY onshore, which is unchanged at 7.2455. Onshore and offshore levels continue to exhibit low volatility/correlation with respect to broader USD trend shifts at this stage.

  • It is a similar backdrop for local equities, the CSI 300 around flat (at the lunchtime break). The Shanghai Composite is firmer but only at the margin and still underperforming the broader rally seen amongst the other major markets.
  • Local bond yields are firmer across the major benchmarks, +2-5bps roughly, with a steeper curve driven by back end outperformance (in yield terms). This follows PBoC rhetoric that suggests local yields are too low relative to economic fundamentals. Other onshore reports (Shanghai Securities News) noted that PBoC action in the secondary bond market should not be misinterpreted as QE by the central bank.
  • The firmer yield backdrop has helped US-CH yield differentials edge down, but we are only a touch off recent highs (2yr spread at +309bps, 10yr around 237bps), with the little positive follow through to CNH, as there remains a decent wedge between current spot levels and the spreads.
  • We have seen a further dip in implied yields for CNH, 1wk back to 3.13%, 1month to 3.89%, little weighing on CNH at the margins.
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USD/CNH sits little changed, last near 7.2600. It is a similar backdrop for spot USD/CNY onshore, which is unchanged at 7.2455. Onshore and offshore levels continue to exhibit low volatility/correlation with respect to broader USD trend shifts at this stage.

  • It is a similar backdrop for local equities, the CSI 300 around flat (at the lunchtime break). The Shanghai Composite is firmer but only at the margin and still underperforming the broader rally seen amongst the other major markets.
  • Local bond yields are firmer across the major benchmarks, +2-5bps roughly, with a steeper curve driven by back end outperformance (in yield terms). This follows PBoC rhetoric that suggests local yields are too low relative to economic fundamentals. Other onshore reports (Shanghai Securities News) noted that PBoC action in the secondary bond market should not be misinterpreted as QE by the central bank.
  • The firmer yield backdrop has helped US-CH yield differentials edge down, but we are only a touch off recent highs (2yr spread at +309bps, 10yr around 237bps), with the little positive follow through to CNH, as there remains a decent wedge between current spot levels and the spreads.
  • We have seen a further dip in implied yields for CNH, 1wk back to 3.13%, 1month to 3.89%, little weighing on CNH at the margins.