Futures Find Firm Footing

The PBOC drained CNY 90bn as additional liquidity from the Golden Week holiday continued to roll off; repo rates diverged with the overnight rate and the 7-day repo rate inverted. Overnight repo rate up 25.5bps at 2.1549%, 7-day repo rate down 2.9bps at 2.1889%. Futures higher, 10-Year contract up 7.5 ticks at 99.125 as equity markets struggle. There has been renewed focus on pieces in state media positing that the PBOC could cut the RRR as soon as this quarter, while another piece opines that the Central Bank could roll over this month's MLF later this week with a larger amount. Government bonds are also attractive in comparison to corporate issues as the Evergrande saga drags on, the IMF weighed in and said: ""While the authorities have the tools to step in if the situation were to escalate, there is a risk that broader financial stress may emerge, with implications for both the Chinese economy and financial sector as well as global capital markets at the extreme".