EM Alpha: Close long 5y China government bond

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EM Alpha: Close long 5y China government bond

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EM Alpha

Close long 5y China government bond

Expect near-term consolidation for CGBs 08 June 2026

We close our long 5y CGB (250020.IB) position at 1.41%, versus an entry of 1.58% on 21 GEM FI & FX Strategy

November 2025. China rates have trended lower year-to-date due to weak credit Emerging Markets Global

demand, low funding costs, and reduced concern about bond supply and inflation (see Janice Xue

more details in our report Emerging Insight: China rates and FX – the path less travelled). Emerging Asia FI/FX Strategist

Merrill Lynch (Hong Kong)

With the PBoC draining excess liquidity for three consecutive months since March, +852janice.xue@bofa.com3508 8587

short-term repo rates have moved higher toward policy rate. We believe the

normalization of funding conditions and reduction of carry should limit further downside

in yields until rate cut expectations re-emerge. That said, a notable rebound in yields For a full list of our open trade

also appears unlikely in the absence of a sustained recovery in credit demand or an recommendations, as well as our trade

improvement in risk sentiment. recommendations closed over the past 12

months, please see Global Emerging

Exhibit 1: The PBoC has drained liquidity for three consecutive months since March Markets Weekly: Diverging bonds 04 June

PBoC’s usage of different liquidity tools

RMB bn 7d Reverse Repo Other Reverse Repo

MLF Net purchase of govt bonds

Cash Management SLF Glossary: 2,000

PSL Structural monetary tools CGB – China Government Bond 1,500

PBoC: People's Bank of China 1,000

-500

-1,000

-1,500

May-25 Jun-25 Jul-25 Aug-25 Sep-25 Oct-25 Nov-25 Dec-25 Jan-26 Feb-26 Mar-26 Apr-26 May-26

Source: Wind, PBoC, BofA Global Research

BofA GLOBAL RESEARCH