Macquarie reports that China bond issuance in June has fallen significantly on tight credit as a consequence of the recent interbank liquidity squeeze - total net issuance shrank dramatically to Rmb41bn from Rmb214bn. The contraction was particularly prominent for Short-Term Commercial Papers (regulated by the PBC), as the liquidity squeeze had a relatively bigger impact on short-term rates than long-term ones. Liquidity has an asymmetric impact on the economy, and hence monetary tightening is more impactful than easing. Given the existing weaknesses of the local economy, Macquarie expects the negative impacts of tighter liquidity to be felt soon. (VIEW LINK)
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