BNPP CHINA IG: MID DAY COMMENTS - MORE DIVERGENCE ON DURATION - 3-OCT

China is opening very resilient here - spreads are outperforming again with benchmark bonds 2-3 tighter and we continue to see o/r accounts coming in to buy. Cash price stuff also relatively firm – seeing 2way action in few properties benchmark, flat open to 0.25pt lower so far. HRINTH is ignoring rates move and opening flat, getting lifted at least 5 lines this morning, still very much one way buying from local fund and retails. The only underperformer this morning is casinos - SANLTDs underperforming with bonds 0.5-0.75pt lower, whilst rest of higher beta casinos names .375-.5pt lower - been seeing some overnight selling but it’s all orderly and feels like it’s just dealers’ shorts pushing on broker screens.

It really seems we have yet to find the clearing levels for rates - we are now like 40 bps higher in USTs vs just 2 weeks ago - so far risks are very resilient though with spreads and equities pretty much still range bound, even the benchmark TLT ETF after losing 13% this year is still seeing money kept pouring in (net inflow at $16bn this year), views on duration are still very much evenly divided. This also applies to China IG space where we continued to see local accounts adding vs US/Europe accounts selling. This probably has got less to do with duration views and it’s more of a function of lack of duration to buy within China/Asia (most oil names are now trading at low 100s) and with tech names wrapped ard 200 it does stand out to be the cheapest part within the China IG world - also helps if one has a long duration view.

Property been fairly quiet but being marked a tad lower, we trading 2way on SHUION this morning and seeing small selling on VNKRLE/DALWAN but that’s pretty much it , NWDEVL another 1-2points higher after +3-4 points last Friday. Market taking it quite positively on the 24s refi comments plus the potential buyback. NANFUN seems to be very bid on as well in street since 1-2 weeks ago. Other rated HK properties names have also gotten a lot more active 2way as opposed to one way selling 2-3 weeks ago.

Beijing clients demonstrate stronger confidence in China's economic growth and a greater belief in addressing existing debt through incremental measures. Foreign clients tend to be more cautious when it comes to the transmission of private real estate debt to the AMC sector and urban investment sector. Even if they are not completely absent, they mostly adopt short-duration strategies, primarily investing in bonds with a maturity of less than one year. Xiao Wang specifically inquired with several bank headquarters and major securities firms and received consistent feedback that, apart from some locally overheated regional urban investments, the issue of bonds with a maturity of less than three years is generally manageable. The reason for the three-year limit is not that bonds with a maturity exceeding three years are not viable, but rather that domestic credit rating teams primarily track domestic bonds. Since domestic credit bonds are mostly limited to a three-year maturity, the same limit applies to foreign bond investments. As an apprenticeship of less than two and a half years at a state-owned investment company, I am aware that I lack the ability to provide a detailed analysis of the specific logic behind the decision-making process of domestic investors. However, from a more intuitive perspective, if you pass by China Huarong on Financial Street every day and witness the constant flow of people, it is difficult not to attribute the creditworthiness of these individual central and state-owned enterprises to a more macro analysis of the country's economic development. Deng Xiaoping once said, and it is also a part of my belief in this country, 'China's key to solving all problems lies in its own development.' I believe this is also applicable when analyzing the AMC and urban investment sectors. As other sectors of dollar bond trading become increasingly crowded, these two sectors are gaining more favor from domestic investors. Currently, domestic clients still prefer the short end, but my understanding is that this judgment is based on a comprehensive consideration of the trend of US Treasury yields. From this logical perspective, once US Treasury yields stabilize, the AMC belly position and urban investments with a duration of around three years may be the next buying direction for domestic investors. At this point, if you are researching where the fair value lies, it means you need to revisit the paragraph above.