Investors price in rate cuts, PBOC taps lending scheme

In contrast to elsewhere, bond yields in China continued to drop this week as investors increasingly come around to our view that further cuts to policy rates and reserve requirements are imminent. Arguably more important for the near-term economic outlook, however, is the news that the PBOC has resumed large-scale injections into China's policy banks to boost their lending. This should supplement the tailwind to investment spending from the recent pick-up formal government borrowing.