The yuan and Chinese rate markets are.........>

CHINA: The yuan and Chinese rate markets are largely shrugging off the drop in

Chinese equities, which has seen the CSI300 and Hang Seng shed 2%, with the

latter breaking back below 26000. 

- USDCNH traded back below the 6.94 level after a brief look above it following

the PBOC fix, which keeps the trend of lower highs from the Nov 13 high intact

for now. 

- 10-year bond yields trade flat on the day after failing to sustain gains above

the 3.4% level, while 2-year swaps are flat at 2.82%. 

- Central bank research head Xu Zhong noted earlier that downward pressure on

the economy has increased significantly and that China should implement more

proactive fiscal policy as monetary policy is less effective at stimulating

growth. This should put upside pressure on rates given the potential for

inflationary fiscal stimulus which could suggest that widespread expectations of

further monetary easing before year-end are misplaced.