CHINA: Bond Yields to Stay in Ranges as Issuance Rises (2/2)

Data out from the China Central Depository & Clearing shows that foreign holdings are off their 2021 peak.
• The peak in foreign holdings was always likely to occur. A long lead time for investors setting up access to bond connect dislocated global managers allocating to China bonds.
• Analysis of the foreign holdings decline versus the decline in the CGB 10Yr indicates that the government bond market is not reliant on foreign participation and that what is more likely is that the allocation by the NSSF (and other key pension funds) is more influential.

• Going forward, it is without question that a stable market is required and any suggestions that yields will climb rapidly misses the point.
• What is more likely is a period of constant enhancement with modest changes to the open market operations and greater use of the relending and rediscount facilities to dampen volatility.
• The cut of the RRR may not be forthcoming and likely held over until the mid part of the year as the authorities ascertain whether the trade war is impacting the domestic economy more than their policies.
• In either event, a stable bond market is necessary to ensure funding is viable for the challenges ahead.