Halister News

(Bloomberg) -- China’s bond market will continue to correct because of continued liquidity tightness and a stabilizing economy, according to Citic Securities head of fixed income research Ming Ming.

• Catalysts for yields to rise could include tighter regulation on leverage, PBOC taking a more cautious monetary stance and rising default for corporate debt, he says
• Short-term liquidity has tightened lately because of net withdrawals by PBOC through open market operations this week
  • Central bank stops selling 7-day reverse repos; share of 28-day funds rises in injections, boosting funding cost on the short-end
• PBOC intends to keep overall liquidity stable; 28-day fund injection would prevent too many reverse repo contracts maturing together shortly after the week-long National Day holiday next week
• PBOC is also concerned about leverage-driven systematic risk as yield at the long-end of the curve has declined again to lower than the shorter-end, indicating a pick up in speculation
• Aug. industrial profits and PPI show economic fundamentals are stabilizing
• NOTE: China 7-day repo rate jumps 12 bps to 2.6152%, highest since July 2015
  • Overnight repo rate rises 9 bps to 2.3018%, highest since April 2015, vs yield for 1-year govt bonds trading at 2.18%