Inflation to drop back sharply, bond rally not over

While the spike in oil prices following the killing of Iranian General Soleimani proved short-lived, oil prices still look set to rise this year on the back of a recovery in demand. But the impact of this on Chinese inflation is likely to be easily offset by the drop in pork prices that is getting underway. Meanwhile, with markets still underestimating the PBOC’s willingness to loosen policy, we think that the recent decline in bond yields has further to run.