Further Policy Easing As MLF Cut 20bps, 2yr CGB Yields Hold At Recent Lows

• In a surprise move the PBOC reduced the rate on it’s medium term loan facility in an out of cycle operation, following on from the other reductions in policies earlier in the week.
• Whilst it has been well flagged that the focus on a strong currency remains, it appears possible that this opportunistic move follows a period of USD weakness as equity volatility continues.
• The MLF was cut by 20bps and offered CNY200bn to banks via the facility and CNY235bn via reverse repo. The magnitude of the cut is significant as it is the largest cut since COVID times, and policy changes are typically made in 10bps increments.
• Bonds had opened softer in line with global sentiment but finished broadly unchanged across the curve following the policy moves.

2yr 1.505% (-1bp) 5yr 1.8803% (unch) 10yr 2.207% (-1bp) 30yr 2.43%