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Risk Sentiment Fragile


The PBOC matched maturities with injections today; repo rates have fallen from yesterday's intraday highs. The overnight repo rate is down 11bps at 2.0878%, the 7-day repo rate still showing some tentative signs of stress at 2.2bps on the day at 2.3722% and above the PBOC's 2.20% rate.

  • Elsewhere futures are lower, holding yesterday's late decline, 10-year is down 11.5 ticks at 99.705. Chinese stocks trade without a decisive direction, swinging from gains to loses and back again amid fragile sentiment following the recent sell off and fears over further Chinese regulation. Speculation remains that foreign funds are selling off Chinese assets with unverified rumours that the US may restrict investments in China and Hong Kong.
  • Bonds have been more resilient than other asset classes amid the recent rout of Chinese assets, boasting yield premiums, the expectation of further stimulus after the RRR cut earlier in July and lack of correlation with other bond markets.
  • In corporate bonds spreads are slightly wider, but holding the majority Tuesday's move which saw spreads hit the narrowest in five years thanks to a rise in government yields. Notes of Evergrande continue to come under pressure after the firm decided against a special dividend and S&P cut the firm's credit rating.

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