1H 2019 Review and 2H 2019 Outlook on the Panda Bonds Market – Volume Notably Down, Cautiously Optimistic on 2H 2019

After four consecutive rate hikes in 2018, the U.S. Federal Reserve took a slight turn in the direction of its monetary policy in 1H 2019, with interest rates remained unchanged post the January and March meetings. There is also an expected interest rate cut in 2H 2019, which further widened the spreads between the Chinese and the U.S. government bonds, with those for 5-year and 10-year government bonds at 84.0 bps and 71.2 bps in 1H 2019, respectively. The widening spreads have led to a more pronounced advantage of offshore funding costs vis-à-vis onshore’s, which in turn affected the attractiveness of the Panda Bonds market in China.