Highlights from the January report

  • China’s debt markets declined on the back of selling pressure after the country’s 19th National Congress in mid-October, with shorter-tenor notes leading the sell-off, pushing the yield curve inversion to its steepest level since at least 2006, according to Bloomberg.
  • Yields on China bonds are rising across the board. Short-term instruments such as AAA-rated three-month paper yielded 5 percent as of end November, up 57 basis points that month; the yield on Chinese 10-year treasury bonds stood at 3.979 percent during the same time period. Corporate bond yields are also rising: yields on five-year top-rated local corporate notes jumped about 33 basis points to a three-year high of 5.3 percent as of November 23.
  • Meanwhile, the short-term macro view on China’s credit markets is turning bearish for some fund managers, due in part to rising yields and fears of near-term macroeconomic instability. For example, Lu Jun of Shanghai Congrong Investment Management said in October that he was shorting Chinese bonds as of end-2017 on the back of rising borrowing costs and inflation fears.

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