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(M2) Correction Extends


Late Session Rebound


(M2) Corrective Cycle Remains In Play


(M2) Gains Still Considered Corrective

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The PBOC matched maturities with injections today, the overnight repo rate down 9.8bps at 1.9812% while the seven day repo rate is up 10bps at 2.10% but off opening highs at 2.20%. Futures are higher as equity markets dip, the 10-year up around 11 ticks at 98.39, but a shade below yesterday's high of 98.425.

  • Markets continue to digest comments from China's cabinet earlier this week that repeated warnings over commodity prices and attached inflation. The State Council said more effort needs to be taken to prevent rising commodity prices from being passed through to consumers. The cabinet said monetary policy should be kept steady, with the yuan kept stable at an appropriate level. The comments indicate the government will use administrative price caps and supply measures to curb commodity prices, rather than tightening monetary policy.
  • There is some renewed concern over Huarong, a 2022 note fell 12% yesterday moving towards record lows while its Nov 2021 bond fell 24%. Domestic bonds are being increasingly hard hit, after previously proving more resilient than dollar bonds on hopes for a debt restructuring. However there appears to be a loss of confidence among mainland investors. Bloomberg points out "There's been little clarity from authorities over the distressed debt manager's future in recent days, despite conflicting media reports about whether the central government will allow the company to default. Failure to repay its debts would upend the long-held expectation by investors that Beijing will support companies owned by the central government. That's helping to fuel volatility in the bonds."

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