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China’s Bond Traders Reprice a Future With Tighter Liquidity

  • Returns on carry trade slashed in half, were once negative
  • PBOC will avoid sending easing signals in near-term: analyst
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Chinese financial markets are adjusting to a new normal: the central bank will go to considerable lengths to reduce the risk of asset bubbles.

The People’s Bank of China tightened liquidity in the financial system and drove up rates in the money market in January. The move, which initially shocked markets, suggests that an era of cheap and plentiful funds has ended. Six out of seven analysts surveyed by Bloomberg predict the central bank will refrain from offering medium-term funds before next week’s Lunar New Year holiday, a reversal of what it did in the prior two years.