23. December 2018
Chi Lo | BNP Paribas
Falling energy and commodity prices, as well as weak demand dynamics, have persistently softened inflation in China. The prospects are rather the same, which should be positive for bonds until 2019.
The recent decline in energy prices and lower domestic commodity prices were the main factors that sank China's inflation rate.
This phenomenon is also reflected throughout Asia, where inflationary pressures have been dampened despite weakening regional exchange rates and oil price increases over the past year.
Now that the oil price trend has turned, inflation in China (and in the region) is likely to slow further, supporting monetary easing, especially when exchange rate volatility eases.
Chinese bond sentiment The market has recently shifted from worrying about defaults to satisfying inflation, as Chinese government bond yields fell from nearly 5.0% to 3.0% a few months ago.
It's about the delivery.
While most of the proceeds stem from issuance of provincial government bonds, which should extend the Chinese municipal government bond market, a development that international investors hope for, Beijing can use its $ 2.8 trillion in state savings to expand of its budget deficit, ie the financing needs.