Nomura Strategy Trade: China rates: Maintain pay 5y position
Summaries are public. PDF access requires an active membership; all members have the same access. Sign in
Nomura maintains its pay position on the March 5-year China non-deliverable interest rate swap, though the firm has reduced its conviction level from 4/5 to 3/5 at the current level of 1.632%. The lower conviction reflects easing uncertainty surrounding bond fund redemption fees, as the China Securities Regulatory Commission's finalized regulations proved more lenient than the initial September draft. Additionally, potential macroeconomic downside risks in the first quarter of 2026, with Nomura economists forecasting GDP growth to slow to 4.1% in the first half, could trigger market volatility.
The People's Bank of China still intends to maintain ample liquidity, although net injections in December fell to CNY 350 billion, down from CNY 600-620 billion between August and November. Despite these headwinds, Nomura retains partial exposure because recent statements from the Ministry of Finance and the central bank continue to support slightly higher long-term interest rates.
Furthermore, improving equity market sentiment, with the Shanghai Composite Index reclaiming the 4,000-point level, along with a relatively flat swap curve, supports maintaining the position. The target rate remains 1.80% through the end of March.