BNY’s Head of Markets Macro Strategy Bob Savage reports strong demand for Chinese bonds sold in Hong Kong, with yields at decade lows after PBoC liquidity injections ahead of Lunar New Year. At the same time, Chinese CPI and PPI undershot expectations, reinforcing a deflationary backdrop and prompting authorities to pledge more proactive macro policies as domestic demand and industrial profits remain weak.

Offshore bonds and deflation pressures

"Debt demand: China sold ¥14bn of bonds in Hong Kong at a 3.94 bid/cover ratio, with yields dropping to 2013 lows: 2y at 1.38%, 3y at 1.40% and 5y at 1.57%. The PBoC has added liquidity ahead of the Lunar New Year, leaving the overnight rate at 1.37%. 7-day rates dropped 2bp to 1.53% after PPI posted a smaller-than-expected y/y fall of 1.4%, linked to commodity prices. CNY was close to flat at 6.91."

"Chinese consumer inflation rose 0.2% y/y in January, down from 0.8% in December and below market expectations of 0.4%. The producer price index fell 1.4% y/y, extending a prolonged deflationary trend despite a slight easing vs. the previous month."

"Authorities have pledged more proactive macroeconomic policies as persistent supply and demand imbalances and weak domestic demand continue to weigh on price pressures and industrial profits."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)