There is no lack of news on measures to reduce financial leverages in China. The latest is a tightening of control on collaterals. Commercial banks are asked to adopt a comprehensive framework to manage collaterals, including setting “maximum collateral rates” for each category of collaterals.

Low-rated credit bonds are to suffer the most leading to wider credit spreads, as they are likely to be subject to lower maximum collateral rates.

While CGBs and PFBs may even benefit from a diversion of flows from credit bonds over the medium-term, the tightening signal should steepen the rates curve on a 1-3 month horizon.

We hold onto our 2s5s CNY NDIRS steepener recommendation.

Bond inflows continued in April (China bond data), but were too small to have an impact on onshore yields or rates levels.

USDCNH and USDTRY screen as the cheapest EM appreciation plays. The flatness of the CNH vol term structure beyond the 1Y point also motivates carry-earning calendar spreads, preferably in the direction of slow-burn currency weakness that is the baseline outcome in the minds of many investors.

For pure vol investors, delta-hedged -9M straddle vs. +18M 25d strangle calendars can exploit this flatness while alongside the cheapness of CNH flies (even adjusted for ATM vol levels) that increase the appeal of short straddle/long strangle packages.

For directional investors not given to frequent delta-hedging, we propose -9M 7.05 vs. +18M 7.15 USD call/CNH put calendars that accrues positively to the over the life of the short leg while awaiting a renewal of RMB weakness, possibly after the November plenum.

Long 3M EURCNH 25D risk-reversal, delta-hedged.

Buy eq-weighted basket of EURSGD puts, EURCNH puts and EURINR puts, 2M 5% OTMS strikes, vs. sell 2M 5% OTMS EURAUD puts.