CGB yields remain anchored with a mild steepening bias, with the 2Y and 10Y yields broadly unchanged at 1.29% and 1.76% respectively yesterday. Front-end funding conditions also remain accommodative, with overnight repo rates staying around 1.23%, well below the 7D reverse repo policy rate of 1.40%. Several developments are keeping CGB yields rangebound.
First, the PBOC is likely to keep liquidity conditions ample as higher oil prices weigh on domestic demand. Factory-gate inflation accelerated to 2.8% YoY in April. Among the key components, petroleum and natural gas prices, together with related processing costs, surged by 28.6% and 14.2% respectively. Rising commodity prices are providing some support to upstream industrial profits. However, downstream manufacturers and retailers are likely to face margin pressure from rising input costs. Both headline and core CPI continue to lag well behind PPI, rising only 1.2% YoY amid still-tepid domestic demand. This indicates weak pricing power at the retail level. Over time, this could spill over into slower income growth if jobless rates rise.
Second, long-end yields, in particular that of 30Y CGBs, could face upward pressure on the back of improving growth expectations. Markets are closely watching the Trump–Xi meeting this week, with attention focused on possible further tariff relief, an easing in US technology restrictions, and China’s rare-earth export controls. De-escalating trade tensions could further support China’s export momentum, following the 14.1% YoY increase in exports recorded in March. Meanwhile, infrastructure investment is expected to accelerate, particularly in support of “AI+” initiatives, including power grid upgrades and data-centre construction. This points to both higher government bond supply and firmer growth expectations.
Third, RMB internationalization could help re-channel foreign inflows into Chinese assets and lay the groundwork for further RMB appreciation. USD/CNY fell below 6.80 yesterday for the first time since February 2023. Since the onset of the US-Iran conflict, RMB settlement activity through China’s Cross-Border Interbank Payment System (CIPS) surged to CNY0.92trn in March before moderating to CNY0.77trn in April, still well above the 2H25 average of CNY0.68trn. The broader adoption of RMB in cross-border transactions could encourage greater foreign participation in Chinese fixed income markets. Rising demand and fresh liquidity will keep CNY rates anchored across the curve.
Topic
Explore more
E & S Macro StrategyGENERAL DISCLOSURE/ DISCLAIMER (For Macroeconomics, Currencies, Interest Rates, Digital Assets or Commodities)[1]
The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.
[#for Distribution in Singapore] This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.
DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.
DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability. 11th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
[1] This disclaimer may not apply if the applicable assets fall within the definition of 'financial instruments' that are set out in Article 2(1) EU MAR (e.g. financial instruments that are traded on a regulated market, MTF or OTF, etc.). Section C of Annex I of MiFID2 specifies these 'financial instruments'.