Standard Chartered: Bracing For Stronger Primary Supply

Standard Chartered write “China rates may enter a period of consolidation after falling consistently since March.”

• “A combination of likely better stock market performance following stamp duty cuts and a potential rise in primary bond issuance should support a modest rebound in China rates near-term.”
• “Interbank liquidity conditions have already tightened since mid-August and more pro-growth measures may be announced.”
• “We think a sharper rebound in rates presents opportunities to re-enter receive rates/long cash bond positions.”
• “We maintain our end-Q3 10Y CGB yield forecast at 2.60% and lower our end-2023 10Y CGB yield forecast to 2.55% from 2.65% on likely further monetary policy easing, a potentially extended period of lacklustre growth amid a transition of economic drivers, low inflation, and still-high real rates.”
• “Local supply-demand dynamics remain healthy. Local asset managers returned as the largest buyers of bonds in July (68% of total net issuance), followed by banks (42%). Securities companies (-15%) and foreign investors (-3%) turned net sellers.”