MNI: China First-tier Property To Rebound, More Support Needed

China’s latest round of property easing in first-tier cities is expected to lift housing transactions over the next two months, though advisers and analysts told MNI the near-term boost will need further support to translate into a sustained recovery.

“In the best-case scenario, transaction volume in Beijing and Shanghai could rise more than 20% month on month during the September-October peak sales season,” said Xie Yifeng, dean of the China Urban Real Estate Research Institute, pointing to recent measures that have included lower down-payment requirements, homebuying subsidies, relaxed purchase restrictions and increased provident-fund lending. “However, activity is likely to slow later in Q4, requiring further policy support.”

Yan Yuejin, vice president at the E-House China Research and Development Institute, said the latest easing and launch of several high-quality projects could trigger a near-term spike in transactions, although a subsequent pullback would be possible and should not cause undue concern as overall trading volume has reached a higher level. “If month-on-month transaction volume grows by more than 10% for three consecutive months, that would generally indicate active market performance with a degree of sustainability,” Yan explained.

Shanghai last week introduced eight measures to support housing demand, including a “sell old, buy new” subsidy of up to CNY80,000 per unit and lower minimum down-payment ratios for second homes and suburban properties. Beijing recently eased social-security requirements for homebuyers and raised maximum Housing Provident Fund loan amounts. (See MNI: More Support Eyed To Stabilise China's Property Market)

NEW HOMES

Yan said new-home sales, driven largely by upgraders, provide a better gauge of market activity than second-hand transactions, which primarily reflect basic housing demand.

New-home markets in Beijing and Shanghai remained sluggish in H1, with inventory clearing periods reaching 30.5 months and 19.7 months respectively, according to Li Yujia, chief research fellow at the Guangdong Urban & Rural Planning and Design Institute. By contrast, second-hand transactions in both cities hit five-year highs in the first half.

“The sharp contraction in the new-home market has a massive impact on local governments, affecting government-funded urban renewal and infrastructure projects as well as employment,” Li said. He expects Shanghai’s easing to spur a mini-boom over the next two months, with momentum potentially extending into Q4, supported by a large population of “new citizens,” substantial upgrading demand and a pipeline of high-quality projects.

INFLECTION

While some institutions expect property markets in Shanghai and Shenzhen to stabilise by year-end, Xie said first-tier markets may not do so until 2028 due to large inventories, including existing homes for sale and foreclosed properties.

Policymakers should focus on strengthening buyers’ purchasing power through preferential tax policies, mortgage-interest subsidies and higher Housing Provident Fund loan limits, Xie said.

Yan added the market is approaching a bottom, but cautioned that this would not necessarily lead to an immediate recovery. A sustained rebound will require continued, targeted policy support, he concluded.

MNI INTERVIEW: Sept Hike Could Hinge On Warsh Speech - Sheets

The Federal Reserve is likely comfortable with holding interest rates for some time, but market reaction to Chairman Kevin Warsh's Jackson Hole speech Friday could force a hike, the former director of the Division of International Finance at the Fed Board of Governors, Nathan Sheets, told MNI.

"I certainly think it's possible that we'll get a rate hike in September, kind of contingent on the outcome of this speech," Sheets said in an interview.

"I don't think we really need a rate hike here. I think the Fed can watch and wait," he said. "Having said that, if he doesn't do something to reassure the bond market he's actually determined to fight inflation, then I fear that if he doesn't do it with words, he may have to do with policy."

JACKSON HOLE

Sheets put some of the blame for the recent jump in Treasury yields on Warsh's July press conference, which left markets doubting his commitment to fighting inflation and boosted the 30-year Treasury yield to its highest level since 2007. "Ideally, this speech will take a bite out of that and bring it closer to 5.10%," Sheets said.

"The big drivers of the uncertainties in the back end of the curve are fiscal, but the Fed's role is to dampen those those concerns, not be an amplifier of the term premiums," he said. (See MNI INTERVIEW: Ex-CBO Chief Says Yields Will Likely Rise More)

Warsh has "to try to rebuild some credibility in the Fed as an inflation fighter," said Sheets, now global chief economist at Citigroup. "At some point Warsh is going to have to have to put down a marker that all this rhetoric that he's advanced on inflation, his commitment to price stability, and bringing it back actually means something and it's not just words."

Sheets suggested that can be achieved without forward guidance. "He's got to share more of a view, more of a strategy, more of a reaction function," Sheets said. "Where is the economy? What's driving inflation, and when's it going to come down? What's the role of monetary policy? You can do all of that without giving formal forward guidance."

Inflation is likely decelerating but policymakers will also have to decide whether they are comfortable with inflation not reaching their 2% target until the second half of 2027, Sheets said. "If they can live with that, I see no need to hike." (See MNI INTERVIEW: Fed On Hold For 'Quite Some Time' - Wright)

But "maybe inflation proves stickier and maybe Warsh needs to put down a marker for the sake of his credibility and needs to hike in the second half" of this year," he said. "It's a close call."

LIMITED POWER

Sheets, also a former Treasury Department official, saw limited tools under the agency's discretion that can dampen longend yields for long. The Treasury will also not be able to rely on bill issuance as much as it has and it will have to issue out the Treasury curve as the U.S. debt pile builds.

"The Treasury comes in with limited ammo," he said about buybacks. "Maybe you can do more out of the general account. It's limited." 

"If you really want to control the back end of the curve, you've got to look down the street to the Federal Reserve, and that's where you get unlimited firepower, and that's where you get into the discussion of central bank independence," Sheets said. "Is Fed QE and Treasury QE comparable? Are they signaling similar kinds of things? Feels to me like a different kind of beast." (See MNI INTERVIEW: Buybacks Likely To Lower Yields A Few BP-Gagnon)

Sheets said Washington policymakers need to focus on fiscal reform. "The ultimate answer is not playing around with the composition or where to issue on the curve."

MNI POLICY: Spreads Hold As Norges Delivers On Certificates

Norges Bank's rapid removal of structural liquidity through the issuance of central bank certificates looks like having only limited additional impact on money market spreads as reserves near zero in September, but either way the Norwegian central bank is set to review the programme at year end.

Demand at auctions for the certificates since their launch in May has been robust, leaving the Bank on track to meet its aim of making its market footprint as small as possible, and shrinking reserves from above NOK200 billion towards its aggregate target band of NOK30-40 billion. Spreads jumped on the original announcement of the planned programme but they have held pretty steady as it has progressed but volatility risks remain.

The three-month forward minus risk-free rate spread, FRA-OIS, increased by some 10 basis points to peak at over 25 basis points following the announcement of a certificates programme in October 2025 but has since stabilised. Current swap spreads are in line with forward prices, and with Norges Bank's 25bp spread assumption in its last two policy rate paths.

While that suggests volatility fears have not been realised, there are further tests to come. (See MNI INTERVIEW: Norges Head Sees Rate Hike Despite Iran Deal)

The certificates auctions have been clearing at a premium to OIS of some 5-10 basis points, maturity-matched, with Norway’s policy rate already relatively high compared to peers at 4.25%. This makes them attractive to a new investor base.

While only the relatively small group of banks with Norges Bank accounts can participate in the auctions, the certificates are tradeable, attracting banks, asset managers and hedge funds in the secondary market with Norway a top-rated sovereign.

Analysts had cited the risk of a feedback loop. Scarcer liquidity could feed through to higher money market premiums and a high premium on the certificates, with domestic banks’ increased demand for liquidity further ratcheting up premiums and spreads. However, premiums and spread pricing so far does not appear to show this ratchet effect materialising.

Structural liquidity, reserves before central bank operations, is set to hit near zero next month on Norges Bank's projections.

Norges Bank has a safety valve in its  F-loan facility, its provision of floating rate loans which can supply liquidity to the banks and allow the central bank to get aggregate liquidity back to target should demand rise in periods of low to non-existent structural liquidity. Previous liquidity shortages saw limited F-loan usage, but Norges Bank is keen to see the facility used without any stigma.

BOOSTING THE INTERBANK MARKET

The broad theory underpinning Norges Bank's approach is that as it squeezes down on supply the interbank market should be free for price discovery and interbank lending volumes should rise. The interbank market had dried up following the Riksbank’s reserve expansion through quantitative easing, supporting the idea the two are inversely correlated.

Average monthly trading in NOWA, the Norwegian unsecured overnight interbank market, has remained within prior ranges in recent months. Its local peak was NOK22.8 billion in September 2024 and it hit a trough of NOK6.4 billion in December 2025 before recovering steadily in recent months to NOK18.1 billion in July.

CORRECTS-MNI: Dutch Fiscal Discipline Limits Any Yield Rise

(Corrects story first published on Aug 24 to make clear the auction on Sep 29 is a DDA, not a regular tap auction)

It is too early to tell whether the recent jump in bonds yields precedes a broader repricing of global sovereign bonds, but the Netherlands' high-rated debt and low debt-to-GDP ratio should contain any rise in Dutch borrowing costs, the Dutch State Treasury Agency told MNI.

"Markets move all the time, as they should. Dutch debt performs very strong versus peers, being AAA with a very low debt/GDP ratio, so even if markets would change adversely, we feel we are in a position where we can still get access at favourable levels," a spokesman for the DSTA said in an emailed response to questions. (See MNI INTERVIEW: Ex-CBO Chief Says Yields Will Likely Rise More)

Bond yields globally rose last week before the U.S. increased planned buybacks at the long end of the curve, amid concerns over high government borrowing and a flood of bond issuance to fund investment in AI.

The DSTA plans to shorten its average maturity to below 7.5 years, but it reiterated its commitment that there is no rigid timeline for this to take place.

"The 7.5-year maturity is a minimum, not a target in and of itself. However, the DSTA does have the intention to gradually lower the maturity of its debt portfolio over the coming period, though we haven’t strictly defined how long that period is," the spokesman said. (See MNI: Dutch Debt Agency Not 'Opportunistic' As Short End Rises)

DEMAND LANDSCAPE

The DSTA noted that "hedge fund engagement over the last few years has been increasing, and we do expect this category of market participants to remain present on our curve." (See MNI INTERVIEW: Must Tackle Hedge Fund Debt Risk - BIS's Gelos)

"We haven't had bond auctions over the summer to judge demand," from Japanese investors, the spokesman said, in response to a question about the impact of rising Japanese yields and the joint intervention with the U.S. in support of the yen in late July.

"It is impossible to say anything substantiated on this, over such a short time horizon," he added, noting the next Dutch Direct Auction will be held on Sept 29.

"During regular tap auctions we don't see end-investors directly, only during the DDA."

CORRECTS-MNI: Dutch Fiscal Discipline Limits Any Yield Rise

(Corrects story first published on Aug 24 to make clear the auction on Sep 29 is a DDA, not a regular tap auction)

It is too early to tell whether the recent jump in bonds yields precedes a broader repricing of global sovereign bonds, but the Netherlands' high-rated debt and low debt-to-GDP ratio should contain any rise in Dutch borrowing costs, the Dutch State Treasury Agency told MNI.

"Markets move all the time, as they should. Dutch debt performs very strong versus peers, being AAA with a very low debt/GDP ratio, so even if markets would change adversely, we feel we are in a position where we can still get access at favourable levels," a spokesman for the DSTA said in an emailed response to questions. (See MNI INTERVIEW: Ex-CBO Chief Says Yields Will Likely Rise More)

Bond yields globally rose last week before the U.S. increased planned buybacks at the long end of the curve, amid concerns over high government borrowing and a flood of bond issuance to fund investment in AI.

The DSTA plans to shorten its average maturity to below 7.5 years, but it reiterated its commitment that there is no rigid timeline for this to take place.

"The 7.5-year maturity is a minimum, not a target in and of itself. However, the DSTA does have the intention to gradually lower the maturity of its debt portfolio over the coming period, though we haven’t strictly defined how long that period is," the spokesman said. (See MNI: Dutch Debt Agency Not 'Opportunistic' As Short End Rises)

DEMAND LANDSCAPE

The DSTA noted that "hedge fund engagement over the last few years has been increasing, and we do expect this category of market participants to remain present on our curve." (See MNI INTERVIEW: Must Tackle Hedge Fund Debt Risk - BIS's Gelos)

"We haven't had bond auctions over the summer to judge demand," from Japanese investors, the spokesman said, in response to a question about the impact of rising Japanese yields and the joint intervention with the U.S. in support of the yen in late July.

"It is impossible to say anything substantiated on this, over such a short time horizon," he added, noting the next Dutch Direct Auction will be held on Sept 29.

"During regular tap auctions we don't see end-investors directly, only during the DDA."

MNI INTERVIEW: Fed On Hold For 'Quite Some Time' - Wright

The Federal Reserve is likely to keep interest rates where they are for a while, with a keen eye on incoming monthly prices measures as a test for whether the central bank might need to raise rates, Johns Hopkins University economist Jonathan Wright, a former Fed economist, told MNI.

"In a nutshell, I would expect the Fed to be on hold for quite some time," he said in an interview. 

Short of a move up in inflation from the current path, it doesn't appear the FOMC will have the appetite for forcing Chairman Kevin Warsh to raise rates against his will, he said. "At the same time, I don't think there's any way of having a rate cut when the real funds rate is about half a percentage point. It's not tight, and inflation has no clear path down to target."

LOW BAR FOR HIKES

The outlook for inflation is "stable but at a level that is above target, but with little clear route down to target," said the former staffer from the Fed Board's Division of Monetary Affairs. There's also "the risk of inflation expectations drifting up further." (See: MNI INTERVIEW: Fed On Hold Through Next Year - Groen) 

Wright doesn't expect the Treasury Department's bond market intervention to succeed in lowering term premia. "I don't think it will work very well in this form," he said. "Based on historical rules of thumb for the effects of Treasury supply, I think it should do about a basis point." (See: MNI INTERVIEW: Buybacks Likely To Lower Yields A Few BP-Gagnon) 

Term premium has been low or negative for 20 years and is now moving upwards, Wright said. "I don't think it is anywhere big enough to do anything material to the term premium."

The Treasury's recent intervention has instead had a negative long run effect, he said. "Traditionally, the Treasury didn't do this kind of opportunistic thing, other than in really extreme scenarios, and I don't think that's good for the Treasury's reputation."

Wright doesn't expect the buybacks to continue beyond the midterm elections in early November. "I don't think they have the appetite to do things on a big enough scale to really have an impact on long-term Treasuries."

The status of core U.S. assets and their ability to act as a haven is something policymakers need to consider, he said. "The most important question is really, why is the term premium back?" (See: MNI INTERVIEW: Trump Accelerating Dollar Decline - Eichengreen) 

"Fed credibility has been a factor in all of this, in addition to the size of the Treasury market, and the nature of the shocks hitting the economy," Wright said. "Bonds are no longer as good a hedge as they were for most of the last 20 years."

MNI: BOC Hold Extended Until Tariff Damage Clear -Ex Officials

Canada's central bank will keep borrowing costs on hold at the Sept 2 meeting and likely at least several more to see if a fresh round of U.S. tariffs and retaliation create a bigger swing in domestic inflation or economic growth, former officials including ex-deputy Paul Beaudry told MNI.

“The tariff escalation will increase the likelihood of a longer hold," Beaudry said. "Since the current stance is already supportive and that retaliatory tariff will be inflationary, staying on hold is likely the right balance.”

Governor Tiff Macklem has held the overnight policy rate at 2.25% all year and at the July meeting said it looked about right to balance the drag from tariffs against the risk of higher energy prices creating sticky inflation. Officials pointed to core inflation at its 2% target as evidence headline prices would slow from about 3% and signs GDP figures due Friday would show a rebound after output stalled in the prior three months.

“The Governor will likely want to emphasize that monetary policy can support the structural adjustment taking place in the Canadian economy, but it is not a substitute for it,” Beaudry said. (See: MNI INTERVIEW: Resilience Keeps BOC On Hold- Ex Adviser Ragan)

Prime Minister Mark Carney said dollar-for-dollar retaliatory tariffs will take effect Sept 8 after a Friday deadline passed for a deal with Donald Trump to avoid 50% tariffs on USD20 billion of Canadian exports. U.S. negotiators added last-minute changes that threatened Canada's automakers and cultural industries, Carney said, while U.S. Trade Representative Jamieson Greer said Canada caused a last-minute breakdown even after being given better terms. 

TARIFF ESCALATION A WASH

"This certainly complicates the decision facing the Bank on Sept 2, but it is not clear in which direction it would move the interest rate, if at all," said former BOC adviser and UBC professor Michael Devereux. "The Bank might remain pat, awaiting further clarification as to how the tariffs and retaliation effects will play out as we enter the fall."

Brett House, a former IMF economist now at Columbia Business School and a member of several Canadian economic think-tanks said “For September's rate decision, the tariff escalation is a wash. The U.S. tariffs could dent demand and growth, but the retaliatory Canadian tariffs could push up price pressures." 

Weaker growth as more of a problem according to Sebastien Mc Mahon, a former Quebec finance official who has attended BOC staff roundtables and been surveyed ahead of federal budgets.

“The risk from this escalation tilts toward more easing down the road, not tightening. The Section 338 duties are a real downside growth risk, even with energy, potash and critical minerals carved out,” said Mc Mahon, now  chief economist at iA Financial Group in Quebec City.

“For Sept 2, we expect a hold at 2.25% and cautious, data-dependent language.” Before the latest tariffs, economists and investors saw a hike late this year or early in 2027 as the economy used up slack created by a first round of U.S. tariffs. 

"Neither a hike nor a cut would help. Tariff-induced inflation or higher inflation expectations are not going to be cured by rate hikes, nor is slack from tariffs or uncertainty going to be absorbed by cutting rates," said Ali Jaffery, former principal economist in the Bank's international department and now chief economist at KPMG Canada.