The yuan strengthened, with USD/CNY nearing 6.80 for the first time in three years, as China-linked tankers transited the Strait of Hormuz. The currency was described as taking on a regional safe-haven role, alongside onshore equities and bonds showing defensive behaviour.
The 90-day correlation between the CSI 300 and the Bloomberg China Treasury Total Return Index turned positive in mid-March. The two markets were reported as moving together and outperforming Western and regional peers during periods of risk aversion.
China’s credit data showed outstanding credit growth slowed to 7.9% year on year, the weakest since November 2024. The 10-year China Government Bond yield slipped below 1.79%, described as its 200-day moving average.
Further demand for China government bonds was linked to the risk of weaker 1Q GDP and activity data. The article noted that an AI tool helped create the content and an editor reviewed it.
We are seeing the Yuan’s rally continue, with the USD/CNY pair now trading at 6.8150, its strongest level since early 2023. This strength is largely due to its emerging role as a regional safe haven, especially with renewed tensions in the Strait of Hormuz pushing Brent crude above $95 a barrel. China’s perceived energy security and limited direct involvement are attracting capital.
This defensive positioning isn’t just in the currency market, as both onshore stocks and government bonds are showing resilience. We’ve seen the CSI 300 index gain 1.5% this quarter, while global indices like the S&P 500 have fallen by almost 3% over the same period. This outperformance highlights the safe-haven flow into Chinese assets.
What is particularly notable for us is the positive correlation between the CSI 300 and Chinese government bonds that began last month. Normally these assets move in opposite directions, so their current tandem movement signals a strong, unified flight to safety within China. This pattern suggests traders are buying both as a hedge against international instability.
However, we must not overlook the weak domestic picture, as yesterday’s credit data confirmed a continuing slowdown. Outstanding credit growth has now fallen to 7.9%, a trend of weakness we first noted back in November 2024. This disconnect between a strong currency and weakening internal credit is a crucial detail for option plays on volatility.
All eyes are now on tomorrow’s 1Q GDP figures, where the market consensus is for 4.8% growth. If the data disappoints, we expect the 10-year government bond yield, already below 1.79%, to fall further as more safe-haven bids come in. Derivative traders should be positioned for a potential spike in bond prices and a further strengthening of the Yuan if the growth numbers miss expectations.
