Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
Summary: Bonds in China have so far been a safe bet for most investors even if the month started off with risk-on appetite. As uncertainty becomes more and more of a familiar face at times where trade tension can change day by day, CGBs have once again step up as an attractive investment selection for traders to counter turbulent market conditions.
Government bonds: yields are relatively more attractive
For the first half month of Jul, government bonds were not favored. Reasons are three-fold: 1. Economic data was satisfying; 2. The optimism developed on back of US-China trade talk resumption; 3. Market trying to digest away the possibility of 50pips rate cut. However, with further developments in economic performance especially on the manufacturing side, bonds were persued for safety purpose. Approaching end of month, intensified China-US trade woe and less dovish FED were fanning worries about global economies. Global yields slumped with safety demand piling up. US yield has dropped to a low since 4Q of 2016, Germany has reached negative yields for all tenors up to 10 years. Comparingly, China 10y government bond is still posting attractive yields above 3%.