Many investors with exposure to the Chinese renminbi (RMB), having enjoyed a strong rally in the second quarter, are worried that policy uncertainties could hurt the currency’s short-term outlook.
Government bond yields have tumbled globally but China’s yields have risen to pre-COVID-19 levels. The RMB hasn’t yet reacted to the favorable rate difference, and we think bond yields are likely to decline moving forward—a favorable landscape for China bonds.
Donald Trump’s policies appear almost certain to contribute to volatility in Asian markets during 2017. For active fixed-income investors who understand the dynamics of bonds and currencies in the region, this creates opportunities.