Highlights in the October report

  • Despite the renminbi’s (RMB) general depreciation trend, RMB volatility is easing as signs of macroeconomic stability in China emerge, including early August data that showed deflation in producer prices may be near an end after more then four years; meanwhile China’s foreign-exchange reserves have levelled out at around $3.2 trillion.
  • By some measures, RMB internationalization has been slowing in recent months: the RMB’s share of global payments dropped to 1.7 percent in June, putting it in sixth place behind the Canadian dollar, as fears of more intervention by China’s regulators dampened confidence in the currency. The People’s Bank of China (PBOC) has said it is committed to defending the RMB from falling past 6.7 per dollar.
  • In the onshore bond market, 10-year Chinese government bonds were yielding 2.82 percent as of July, marking a rebound following the UK’s vote to leave the EU, and delivering a higher return than the negative yields on offer in some developed markets.
  • At the same time, default risks are rising for onshore corporate bonds as macroeconomic growth slows, and many market participants look to the offshore dim sum market. In the year through June 30, 17 issuers defaulted onshore, nearly three times the number of defaults seen in the whole of 2015.

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