Driving forces of CNY IRS gains (almost 30 bps)

There've been emerged tightening bias in China’s onshore liquidity situations in recent past – while the PBoC infused CNY1.3trn money into the market via different instruments, there is no significant improvement yet.

One-year interest rate swap picked up significantly by almost 30bps in the past few weeks.

A few reasons highlighted:

Firstly: The activity data shows improvements, while CPI inflation is rising, the market observes that the monetary policy easing will be less aggressive than anticipated.

Secondly: We have seen a lot more default cases in corporate bond sector, which has raised credit concerns among investors.

Moreover, local issuers have cancelled CNY117bn of bond sales in April alone.

And finally: The capital outflows continue, although the pace has slowed. In order to calm down the market fears.

We are cautiously awaiting for this week’s Chinese manufacturing PMI and next week’s Caixin Manufacturing PMIs.

We believe that the central bank will roll out further policy easing, including cut to the reserve requirement ratio, in the foreseeable future.