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CGBs underperform as CNH interest rates surge (again)

10 October 2012

Recent volatility in the offshore renminbi (CNH) money markets has prompted the yields on Chinese government bonds to surge. Average yields on CGBs have jumped by about 30-50bp in the past few weeks on the back of yet another short-term liquidity squeeze (see chart 1). We expect CGBs to continue to underperform unless the authorities in Beijing and Hong Kong step in to address liquidity pressures.

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