China Rates and FX: The Path Less Travelled

China's markets are increasingly driven by idiosyncratic factors, with the CNY outperforming peers and government bond yields hitting record lows. BofA expects RMB appreciation to moderate and has moved to a neutral stance on bonds as funding conditions normalize.

Key Takeaways

• 1.CNY has appreciated 3.3% vs USD ytd, outperforming regional peers despite terms-of-trade headwinds.
• 2.RMB appreciation is expected to moderate due to seasonal dividend demand and potential PBoC countercyclical tools.
• 3.China rates have declined due to weak credit demand and excess liquidity, leading BofA to turn neutral from bullish.

Table of Contents

• Key takeaways
• China in Focus
• China – idiosyncratic stories dominating global trends
• USDCNY continues to be driven by FX flows
• China rates – weak credit demand pushed yields lower
• Turning neutral on China rates

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