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China Market Updates (15 Jun 2015 - 19 Jun 2015)

Published time:[22 Jun, 2015 11:25] From:E Fund Management (HK) Co., Limited

Weekly China Market Updates (15 Jun 2015 – 19 Jun 2015)

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Market Review

Bond market went stable with slight gain last week. Chinabond Composite Total Return Index closed at 165.95, up by 0.09% from 165.80. 10 yr treasury yield (CUTB10) dropped 4.0 bps from 3.6226% to 3.5825%, back to the level of the week before. Yield curve flattened a little, driven by half year end tightening liquidity in the market. 

Source: Bloomberg 19 Jun 2015
 

Source: Bloomberg 19 Jun 2015

Liquidity condition changed dramatically with two factors driving repo rates up. The first one is the coming half year end, with banks preparing liquidity ratios tests, it was hard to borrow long term (passing 30 June threshold) money from market. Another factor was the biggest IPO amount in history, which locked around 6-7 trillion subscription money. 7 day repo rate hiked from 2.1% to 3.5% through last Thursday, and dropped back to 2.86% on last Friday. 
The tightened liquidity drove short term yields up by around 5-10 bps. But the market believes it was just short term turmoil. Once the two factors pass, liquidity will get back to loosening status. 

 

Source: Bloomberg 19 Jun 2015

With liquidity driving short term yields up, another factor was pulling long term yield down. Rumors prevailed in the market saying that PBoC was doing twisted operation (buy long term debts while selling short term debts). This dragged long term yields down by around 5 bps over the week. Yield curve flattened slightly over the week. But we believe it was just short term status and after month end of June, yield curve will soon come back to steepening trend. 

 

Source: Bloomberg 19 Jun 2015

Credit spread increased slightly over the week. As we stated last week, short term fluctuation of credit spread can be caused by valuation lag. So the short term positive sentiment with credit valuation lag was probably the major factor sending credit spread to a higher level. We still believe credit spread will continue to narrow down after short term fluctuation. 

 

Source: Bloomberg 19 Jun 2015

Market Outlook


 

Our market view didn’t change much after last week. Overall, we are still bullish on bond market as a whole. But at the same time, we became more and more cautious on taking long duration. With long term yields drop further, we will take it as chance for us to shorten our duration.  

Key market changes


 

Source: Bloomberg 19 Jun 2015

Source: Bloomberg 19 Jun 2015

Source: Bloomberg 19 Jun 2015

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E Fund Management (HK) Co., Limited has based this document on information obtained from sources it believes to be reliable but which it has not independently verified.  Information, opinions and estimates in this document reflect a judgment at its original date of publication and are subject to change without notice.
This document has not been reviewed by the SFC of Hong Kong. Issued by E Fund Management (Hong Kong) Co., Limited.
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