SHANGHAI/SINGAPORE : Bond markets are putting Chinese and global rates on opposite paths, speculating on cuts in China against hikes in the U.S. and prompting banks and Chinese companies to prepare for a weaker currency as Beijing rolls out more stimulus.
The position, with China's rates below those in the United States, is the reverse of more than a decade of high-growth that saw China paying better yields than markets in the west. "The People's Bank of China's tolerance of currency weakness ... also opens up room for further yuan weakness." J.P. Morgan recently downgraded its year-end yuan forecast, from 6.85 per dollar to 7.25 per dollar.
Even if the Federal Reserve holds rates steady later on Wednesday, as expected, traders are braced for an extended period of elevated U.S. interest rates and, increasingly, for China to hold rates low or push them even lower. Chinese companies have accumulated $24.2 billion of"excess" dollar savings over the past year, according to a J.P. Morgan estimate, bringing the total foreign exchange deposits in China to $851.8 billion at end of May.
However, traders and analysts said companies are unlikely to follow the authorities' intended path and may even direct their capital outside China to offshore accounts.
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