HALISTER1: Hold Off on China Dim Sum Bonds as Yuan Depreciation Looms: CA

Hold Off on China Dim Sum Bonds as Yuan Depreciation Looms: CA

(Bloomberg) -- Wait until the next auction to enter at a better buying point as CNH set to depreciate further amid rising U.S. rates, Trump policy proposals, Europe uncertainty and slower domestic growth, Credit Agricole strategist Dariusz Kowalczyk writes in note.
  • USD/CNH to weaken to 6.90 by end-2016, 7.0 by mid-2017, 7.1 by end-2017; continued depreciation should keep boosting offshore CGB dim sum yields, making next auction a more attractive time to buy from yield standpoint
  • Currently high carry cost for dim sum CGBs boosted from higher CNH money market rates
  • Investors likely to be more concerned about CNH weakness than yield pickup, which should drive down bid-cover ratio in upcoming auction
  • Rising correlation between CGB yields and other G-5 (SDR basket) yields, while still relatively low, is a “worrying trend” if continued as it would reduce diversification advantage
  • Central banks shifting interest from dim sum to onshore market as well as a “shrinking” dim sum market also make next auction a better time to enter
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Dariusz Kowalczyk (Credit Agricole SA)

To de-activate this alert, click here

UUID: 7947283