On April 11, the yield of us 10-year Treasury bonds rose by 5.5bp to 2.764%. The yield of China's 10-year Treasury bonds was flat. The valuation of Japanese and Chinese bonds was 2.75%. The interest rate spread of China US 10-year Treasury bonds was upside down for the first time in nearly 12 years. This round of China US interest rate spread upside down is similar to that in 2018. The fundamental reason is the dislocation of the economic cycles of the two countries. At present, China stimulates effective demand through loose policies to achieve stable growth, while the United States focuses more on preventing inflation. The direct consequence of the upside down of interest rate spread between China and the United States is that foreign capital has continued to reduce its holdings of Chinese debt in recent times. According to the data in March, the scale of foreign capital's holdings of treasury bonds, government financial bonds and commercial bank bonds further expanded to 51.81 billion yuan, 39.68 billion yuan and 4.91 billion yuan.
The interest rate difference between China and the United States is upside down. In the face of the devaluation of the RMB exchange rate, there is pressure, but the impact is limited. The important reason is that the US inflation expectation is high. Although the nominal interest rate is high and the real interest rate is still low, there is still room for the real interest rate difference between China and the United States, which will support the RMB exchange rate to a certain extent. From the perspective of balance of payments, the narrowing of interest rate spread between China and the United States also has a limited impact on the RMB. The upside down of interest rate spread between China and the United States or affected by sentiment will put pressure on the RMB in the short term, but the probability of sustained unilateral depreciation is small.
