The Bond Selloff Looks Overdone

China’s bond markets have taken their cues from the equity market’s sudden rally rather than fundamentals of the economy or changes in the PBOC’s monetary policy outlook, and we expect short-term rates to fall significantly from current levels, starting in the next two weeks. Many of the factors tightening liquidity conditions at present are temporary, such as the redemption pressures facing money market funds. June CPI components flag intensifying deflationary pressures, rather than any concern about economic overheating. The PBOC will consequently stay on an easing course.

Posted July 13, 2020
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