Steepening Ahead as Regulations Bite

A market-friendly PBOC sent short-term money rates lower in January despite heavy tax payments, and liquidity conditions are expected to remain benign into the Chinese New Year holiday. Steepening of the money market yield curve is likely to continue as banks adjust their balance sheet structure, by assuming more long-term liabilities and investing in short-term assets to meet new regulatory requirements. The migration of loans from shadow banking channels back to banks’ balance sheets will also increase banks’ need for capital.

Posted February 1, 2018
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