JPM Move Yuan To Marketweight From Underweight, Recommend 1y CNH CCS Receiver

J.P.Morgan write “the PBoC is making good progress in pushing for greater use of yuan in bilateral trades, especially commodity imports. China’s commodity-related yuan settlement has been growing at a rapid pace, doubling every year since 2020 and its share of total CNY-denominated goods trade flows has now climbed to ~20%.”

• “Global fund-raising activities in CNY/CNH have also gained traction since 2022 due to relatively cheap financing costs.”
• “Increasing yuan-denominated trade settlement and asset-swapped CNH bond issuance are structural forces that could compress CNH CCS yields while seasonal CNY strength towards year-end may bring additional tactical tailwinds. We believe the downtrend in front-end CNH CCS rate is not fully done.”
• “USD/CNH has stuck in a tight range of late. As we head into year-end/pre-LNY season, we move market CNY FX (from underweight) while adding a 1y CNH CCS receiver to position for CNY’s seasonal strength.”
• “Over the medium term beyond seasonality, we see CNY TWI as a good USD proxy, especially on weaker DXY moves and lean to sell into rallies in the basket.”