CSC Financial says the probability of a Fed rate hike is low in the near term;
market worries about Fed tightening are largely expectation-driven and rest on
assumptions of persistent US inflation and a hot labor market. CME FedWatch
shows markets begin pricing a high probability of Fed hikes from late October
2026. Current global liquidity tightening and market adjustments largely reflect
an early reaction to Q4 Fed-hike expectations. For China’s bond market, higher
Fed-tightening expectations are not necessarily negative: the market is
relatively independent with limited linkage to US Treasures, and ample domestic
liquidity means anticipated overseas liquidity tightening and equity weakness
could drive flows into domestic bonds, supporting long-end yields. CSC expects
the 10-year China government bond yield to trade around 1.70%; a break below
1.70% would require fresh domestic incremental information.
