Highlights from the October report

  • Despite the potential for new policy announcements at China’s 19th Party Congress in October, the People’s Bank of China (PBOC) is expected to continue its attempts to simultaneously balance competing goals: controlling excess leverage in the economy by clamping down on excessive lending, while also trying to protect against a protracted economic slowdown. According to 60 percent of economists in a Bloomberg survey conducted in August, the PBOC’s broad policy stance will remain unchanged through the end of the year.
  • At the same time, in August offshore investor trading in short term debt via China’s Bond Connect spiked on the back of a stronger RMB – an uptick in trading that follows a slow start to the new program. According to data from the Shanghai Clearing House, the total settlement value of Bond Connect transactions it received nearly quadrupled in the week of August 21 to 11.8 billion RMB ($1.8 billion) compared to the previous week.
  • Meanwhile, bond yields are rising onshore: the yield on China’s 10-year government bond rose to 3.62 percent in August, widening the gap with US Treasuries of similar maturity, which declined to 2.2 percent. And the RMB is starting to recoup recent losses due to a range of factors, including China’s restrictions on capital outflows and US dollar weakness. On August 29, the RMB strengthened beyond 6.6 per US dollar for the first time since June 2016.

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