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Resistance At The 20-Day EMA Remains Intact


(N2) Eyeing Resistance


Corrective Cycle Still In Play

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  • The significant deceleration in the Chinese economy in the past year has led to a consolidation in LT bond yields.
  • China 10Y yield has been constantly reaching lower highs since its peaked reached in February 2021, recently breaking below its key support at 2.80%, which corresponds to the 61.8% Fibo retracement of the 2.46% - 3.36% range (2020/2021 low high).
  • As China maintains a ‘zero-Covid’ policy, the discovery of a new variant has resulted in renewed restrictions/local lockdowns imposed by the governments and therefore lowers growth expectations.
  • The PBoC decided to lower its 1Y medium term Lending Facility Rate by 10bps to 2.85% overnight, the first reduction since April 2020.
  • This move follows the two 50bps cuts in the RRR in 2021 in attempt to stimulate the economic activity and domestic risky assets (i.e. equities) and potentially weaken the CNY, which has been constantly strengthening against all the major crosses in the past 18 months.
  • Hence, further easing from China officials could lead to further downward retracement in the 10Y yield in the short term.
  • Next key support to watch on the downside stands at 2.67% (76.4% Fibo), followed by 2.60%.

Source: Bloomberg

MNI London Bureau | +44 203-865-3850 |
MNI London Bureau | +44 203-865-3850 |

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