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Long Weekend In Japan

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  • Recently, we have seen that despite the recent surge in inflation, which 'pushed' Chines authorities to launch price controls on key consumer goods on corn, wheat and pork, the 10Y yield has remained almost unchanged (up 7bps) and is currently trading slightly below its 3.18% resistance (100D and 200D SMA).
  • The chart below shows that China currently offers a 10Y real yield of -5.8% when we adjust by PPI inflation, the lowest among the EM World.

Source: Bloomberg/MNI

  • As the annual growth in M1 money supply growth has been falling since the start of the year, real money growth (adjusted by PPI) has been contracting sharply in recent months, which has historically been associated with higher China LT bond yields.
  • The chart below shows that real M1 money supply and China 10Y yield have been diverging significantly in recent months after co-moving strongly in the past 15 years.

Source: Bloomberg/MNI