DBS Awaiting NPC For Next Cue

DBS note that “there has been some loss of momentum in the China reopening trade, as reflected across risk-sensitive Chinese asset markets. Investors appear to have doubts on the breadth and durability of the growth recovery, especially as there have been few signs of stabilization in the property sector. At the upcoming NPC (starting 5 March), we will be watching to see if there are announcements of further policy easing measures and more support for the property sector - which could be the catalyst that drives the next leg higher in 5-Year IRS and 10-Year CGB yields.”

• “Liquidity conditions in Q1 have been tighter than we had earlier anticipated and continue to be dependent on PBOC conducting/rolling over large sizes of daily OMOs to cap potential spikes in funding rates. DR007 rates are expected to stay volatile and could even trend above the OMO rate. In view of the change in liquidity outlook, we no longer think that 1-Year IRS rate is overpriced. The current level of 1-Year IRS rate may be justified due to the higher level and increased volatility of funding rates, even though there are no immediate risks of rate hikes on the horizon.”