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USD/CNH Above 7.2100, Onshore Government Bond Yields Tracking Lower

CNH

USD/CNH pushed above 7.2100 by the NY session, with a firmer US yield backdrop aiding the move. We didn't breach highs from last Friday though, which came in just above 7.2140. For onshore spot we ended yesterday at 7.1975, so a decent wedge with respect to CNH levels. The CNY NEER (J.P. Morgan index) edged down slightly to 124.5.

  • Yield differentials continue to track in favor of the USD, the 2yr spread back to +267bps, levels last seen in Nov last year. China's 2yr government bond yield sits at 2.05%, just above recent lows, while the 10yr has fallen sub 2.40%, fresh cyclical lows.
  • Wider yield differentials against the US and EU are a factor behind corporates to keep more offshore earnings in foreign currency. Reuters noted that Jan saw a record month for bank purchases of dollars via swaps from clients (see this link for more details).
  • In the equity space, we finished lower for mainland stocks yesterday, amid modest northbound stock connect outflows. The Golden Dragon index rose 0.74% in US trade though, the fourth straight session of gains.
  • News flow is focused on government efforts to boost the private sector, while President Xi called for improving the momentum of the economic recovery late yesterday (see this link).
  • The local data calendar remains empty today.
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