Goldman: A Tug Of War Between Monetary Easing And Credit Expansion.

Goldman Sachs note that “both CGB yields and NDIRS rates declined until late August, on weak economic momentum and a policy rate cut.”

• “CGB/CDB bond and NDIRS curves flattened somewhat, as interbank repo rates remained well above the OMO rate on accelerated LGSB issuance, tax payments, and month-end seasonality.”
• “The tight interbank liquidity is likely to discourage financial leveraging and to stabilize CNY via higher onshore funding costs.”
• “Long-term rates (e.g., 5y NDIRS rates) drifted up by 5-10bp amid the announcement of property policy easing over the past two weeks, and curves steepened somewhat.”
• “The key debate of China rates remains whether and when we may see strengthening demand with reflation and credit expansion.”
• “We maintain a receiver bias across the CGB/NDIRS curves over the medium term on our expectations of monetary policy easing by the PBOC and the ongoing property and LGFV deleveraging process and prefer to receive on spikes.”
• “For USD-funded investors, FX-hedged bonds remain an attractive option given sizeable spreads over U.S. treasury yields.”