China onshore rates rise on expectations of less aggressive PBoC easing

Economic scenario in China has been quite upbeat in April.  Rebound in PMI pulse, improved trade data, stronger commodity and house prices and a stronger GDP growth in Q1 have helped in strengthening confidence. Meanwhile, the country posted above expected trade data in March.

China's activity data are improving and inflation expectations are picking up due to rising food prices and property overheating, following which markets are now expecting the PBoC will be less aggressive in its monetary policy easing.

"We still think that the central bank will cut the policy rates one more time this year. However, this cut is likely to be the final cut – in other words, we are close to the end of the aggressive easing cycle." said Commerzbank in a report.

China’s onshore rates are picking up as the market expects less aggressive easing measures following the improving March activity data. The one-year interest rate swap (IRS), a guage to reflect the expectations of market rates, increased by 30bps since late March, the biggest jump since June 2015.

"In our view, there is still plenty of room for rates to go higher as the market had priced in too much bearishness." adds Commerzbank.