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IGM Credit, IGM FX and Rates

China Insight: Bond Inflows Pick Up Amid Weak Economy

As Emerging Markets go into recession, EM policymakers have rapidly deployed a broad range of support measures with more to come, but it remains to be seen how effective these will be in mitigating the EM growth hit. As far as China is concerned, negative GDP growth in Q1 looks unavoidable. The most pessimistic estimate in the street is -9%. For the full-year GDP growth, the revised estimates in the street fall between +1% and +4%. In light of the gloomy economic outlook, Beijing definitely will step up stimulus. Now a cut in the benchmark deposit rate is on the cards, which could be a more meaningful means to boost retail consumption. With interest rates trending downward, onshore government bonds and policy bank bonds have kept rallying recently on the back of strong buy-and-hold demand (chart 1). The latest data suggests the China bond market saw USD11bn of net inflows from foreign investors in February, up from only USD2bn in January (chart 2). Among the paper which is already or being included in the major global government bond indices, policy bank bonds (PBBs) registered a bigger increase in foreign investors' portfolios than China Government Bonds (CGBs). Of the USD11bn of net inflows in February, USD5bn was taken by PBBs, USD4bn by CGBs with the remainder by negotiable certificates of deposit (NCDs) and medium-term notes (MTNs).      

Topic Industry News

EPFR

Quants Corner - Money Market Fund flows: Fear is not their only signal

With the impact of the COVID-19 virus on day-to-day life and the global economy growing by leaps and bounds, fund flows are reflecting the biggest flight to safety by investors since the financial crisis in 2007-08.  

Topic Industry News

IGM Credit, IGM FX and Rates

China Insight: What Does Recent IRS Curve Steepening Imply?

China's activity growth data for February were much weaker than expected, suggesting there is a very good chance the Q1 GDP y/y will fall into negative territory. Among forecasts from major investment banks, the most pessimistic ones for China's Q1 growth y/y are now in the -7/-9% range instead of +2/+3% territory seen a month ago, while that for the 2020 full-year growth are in the +1/+3% area rather than +4/+5%. To avoid the economy worsening further in the aftermath of the COVID-19 outbreak, Beijing inevitably has to ramp up fiscal spending substantially over the rest of the year. Given the postponement of the National People’s Congress (NPC) meeting which was initially scheduled for early March, we so far have no official data on how much the government will spend in 2020. However, with the onshore CNY IRS curve steepening sharply recently (chart 1), we doubt the potential increase in government expenditure will be small. Meanwhile, we reckon most (if not all) of the extra spending will be financed by the issuance of special bonds, in particular, the long-term ones. As per chart 2, special bond issuance increased substantially in Jan and Feb, which may be setting a trend for most of the year.      

Topic industry-news

psn, zephyr, psn-sma

Ryan Nauman's Weekly Recap 03.23.20

With expectations for a U.S. recession in 2020 running high, one has to believe that bad economic data is priced into markets. We will continue to get more and more economic data releases that miss big on the downside. However, these misses will not come as a surprise, as most market participants are expecting the worst. Investors will continue to focus more on monetary and fiscal policy when determining their investment strategies rather then economic data that is expected to be very soft. Read more from Ryan Nauman's Weekly Recap and subscribe to have it delivered to your inbox each week!

Topic industry-news

IGM Credit, IGM FX and Rates

The Context 03.23.20

The Context

Read more from The Context and subscribe to have it delivered to your inbox each week!

Topic industry-news

EPFR

Quants Corner - Knowing when to jump: risk management in extraordinary times - Crossing to safety in extraordinary market conditions

What had been a relatively measured response to the coronavirus outbreak that started in China around the New Year became an increasingly disorderly stampede for the exits in late February. As COVID-19 spread across the globe, US stock market took a series of hits culminating in a 7% drop on March 6 that triggered the so-called “circuit breaker” – suspension of trading – for only the third time since its adoption.  

Topic industry-news

Rutger Responds: Importance of Actionable Insights in Uncertain Times

Rutger Responds: Importance of Actionable Insights in Uncertain Times The COVID-19 virus is spreading and everyone is looking to understand how this will impact their business and their customer’s lives. As things change in a rapid pace, and will continue to change over the foreseeable future, having access to market insights will help your financial institution to make crucial decisions.

Topic industry-news

IGM Credit, IGM FX and Rates

China Insight: Bullish on CGBs as RRR Cut in Sight

Chinese Premier Li Keqiang held a State Council meeting on 11 March. Two key signals were released there: Speed up credit supply to industries and enterprises. Implement targeted cuts in reserve requirement ratios (RRRs) The signals are very clear, so we will see further liquidity loosening in mainland China in the near term. We expect a targeted RRR cut will be announced very soon. Needless to say, further reduction of loan prime rates (LPRs) will also happen at the regular fixing on 20 March. In regard to the China government bond (CGB) trading strategy under the prevailing environment, we here reiterate our bullish view.      

Topic industry-news