HALISTER1: China’s Bond Correction Just Starting, Says Huachuang Securities

China’s Bond Correction Just Starting, Says Huachuang Securities

(Bloomberg) -- China’s bond-market correction has only begun, and funding costs will rise further as PBOC is determined to gradually deleverage debt markets, Huachuang Securities analyst Qu Qin writes in note today.
  • Resuming 14-day reverse repos indicates PBOC wants to raise funding costs by adjusting structure of OMO injections
  • NOTE: PBOC has told banks it could sell reverse repos longer than 14 days if necessary, Markets News reports today
  • The correction in bonds should accelerate as institutional investors halt investments in primary market and wait for yields to rebound, says Huachuang
  • In mid-term, inflation pressure should drive bonds down further; sees CPI at 1.8% in August, the same as July, and rebounding thereafter to “2% area” in 4Q
    • PPI deflation is likely to moderate to -1% in August on the back of rising metal, coal and oil prices, with the gauge returning to inflation in October
  • Yield on 2.9% govt bond maturing May 2026 is up 1 bp to 2.770%, while yield of Sept. 2035 note gains 1 bp to 3.102%
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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Qu Qing (Huachuang Securities Co Ltd)

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