HALISTER1: Chinese Bond Yields to Fall as Banks Step Up Purchases: CICC

Chinese Bond Yields to Fall as Banks Step Up Purchases: CICC

(Bloomberg) -- Yields on Chinese central and local government bonds have downside potential even as PBOC keeps prudent monetary policy, CICC wrote in a note yday.
  • Banks will replace wealth-management houses as key driver of the debt market
    • Banks have cost advantage as deposit costs are well below 2%; risk weight is zero for central and local government bonds
    • Most government bonds offer investment returns above 3% on tax-adjusted basis
  • PBOC has extended maturities of OMO injection tools meant to stabilize leverage ratios instead of deleveraging
    • With liquidity-injection volume stable, balance of unexpired repos could grow at a slower pace
  • Chinese economy to face large downside pressure in 2017; PBOC still needs to loosen monetary policy appropriately when the time is ripe
    • China CPI to rebound in 4Q y/y and to decline significantly in 1H 2017
  • Yield on 10-yr Chinese govt bond rises 3 bps to 2.790% today
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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