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Debt woes widely known but far from priced in

Moody’s downgrade to China’s rating outlook received a muted response in markets. That’s partly because the country’s economic challenges are already widely known. But the bigger picture is that investors in onshore bonds have largely shrugged off growing financial strains and continue to assume that the central government will stand behind the liabilities of large banks and local governments.

Meanwhile, today’s Politburo meeting called for a step up in fiscal support, consistent with our expectation for a cyclical policy-driven recovery over the coming months.   

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