The rise in the U.S. 10-year Treasury yield to three-year highs has erased its gap with its Chinese counterpart, something that hasn't happened since 2010.
In the last few months, the yuan has traded near three-year highs against the U.S. dollar, and weakened slightly in recent weeks. The onshore yuan traded near 6.37 versus the greenback Tuesday afternoon, 0.38% weaker for the year so far.
But right now, China's high trade surplus more the offsets the impact of the narrowing yield gap on the yuan, Larry Hu, chief China economist at Macquarie, said in an email. The Chinese yuan will face more depreciation pressure from a decline in China's trade surplus, Hu said. To him, the convergence in the U.S. and China 10-year yield is not that big of a deal since the gap has been narrowing for more than a year.
A country has a trade surplus if its exports exceed its imports. China reported a trade surplus of $47.38 billion in March, down sharply $115.95 billion in the January to February period.
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