The Chinese yuan continues to strengthen, benefiting from a weaker U.S. dollar. Chinese government bond yields remain above 1.78%, after breaking out of the 1.60%-1.65% range.
The Peopleโs Bank of China (PBoC) has maintained a cautious monetary stance, refraining from rate cuts for several months and halting its bond-buying program.
This has led to tighter interbank liquidity and delayed expectations for easing measures. The PBoCโs focus on yuan stability over stimulus suggests a preference for caution amid trade tensions and the Federal Reserveโs policies. The central bank’s active support via daily fixings and capital controls offers short-term stability but restricts room for maneuvering.
In the bond market, liquidity constraints could push yields higher. Despite this, the yuanโs outlook remains stable, barring major global shifts. Regional authorities continue to issue large amounts of bonds, with a significant portion allocated to replacing off-balance-sheet debt.
The increased supply and the PBoCโs cautious approach may lead to more short-term volatility for both the yuan and Chinese bonds.
Leave a Comment