USD/CNH Just Short Of Recent Highs, Yields Up From Recent Lows On PBoC Announcement

USD/CNH tracks near 7.3050 in early Tuesday dealings, close to intra-session highs from Monday US trade. This is just short of recent highs at 7.3077. The 20-day EMA sits back near 7.2815 on the downside. USD/CNY spot ended Monday's session at 7.2684, also close to recent highs, but we have seen a re-widening of the CNH-CNY basis, which is trending towards +400pips.

• Firmer USD trends, particularly against the yen and CHF (low yielders) likely saw some negative spillover to CNH in Monday trade. Core yields were higher as the US curve steepened.
• There is likely to be renewed focus on local government bond yields today, as the PBoC announced yesterday it will borrow bonds from primary market in order to maintain a stable operation of the market (see this link for more details).
• We did see a recovery in CGB yields post this news. For the 10yr yield, from sub 2.20% we finished up at 2.25%, a 4bps gain. Front end yields also rose, but the 2yr remains close to recent lows (ending Monday at 1.67%). Depressed yields have been a focus point for the PBoC in recent months, with the central bank warning of divergences away from long term fundamentals.
• Still, it is likely US yield shifts will continue to exert the greatest influence on US-CH yield differentials.
• In the equity space, onshore markets were firmer on Monday, the CSI 300 up nearly 0.50%. The local data calendar is quiet until tomorrow's Caixin service PMI prints.