Core Insights - The 2025 Triennial Central Bank Survey indicates a significant increase in trading activity in FX and OTC interest rate derivatives markets, with FX trading reaching $9.6 trillion per day, up 28% from 2022, and OTC interest rate derivatives increasing 59% to $7.9 trillion daily [1][2]. FX Market Overview - The US dollar remains the most-traded currency, involved in 89% of all FX trades, followed by the euro at 28.9% and the Japanese yen at 16.8%. The share of sterling decreased to 10.2% [3]. - FX swaps are the most traded instrument, with average daily turnover rising to $4 trillion, a 5% increase from April 2022. FX spot trading increased by 42%, while outright forwards rose by 60%, with their shares in global turnover reaching 31% and 19% respectively [3]. OTC Interest Rate Derivatives - Average daily turnover of euro-denominated contracts nearly doubled to $3.0 trillion, accounting for 38% of the global total, while US dollar contracts increased by 7% to $2.4 trillion, leading to a decline in the international share of US dollar contracts to 31% [4]. - In contrast, the market for exchange-traded derivatives shows US dollar contracts holding 65% of global turnover, with significant increases in turnover for sterling and Japanese yen derivatives, surging by 179% and 684% respectively [5]. Trading Centers - FX trading remains concentrated in major financial centers, with the UK, US, Singapore, and Hong Kong SAR accounting for 75% of overall foreign exchange trading [5]. - The UK is the most important FX trading location, maintaining a 38% share of total turnover, while for interest rate derivatives, the UK and US together hold 73% of the market [6][7].

Investment Rating - The report maintains a "Long" position on 3-year Chinese Government Bonds (CGB) in anticipation of dovish policy tailwinds from the People's Bank of China (PBoC) [2][28]. Core Insights - Chinese corporates are lagging in de-dollarization efforts, with a notable increase in net USD selling by exporters in May, but this was primarily due to reduced outright USD buying rather than increased selling [3][11]. - The PBoC's fixing strategy has shown a more measured pace in the recent decline of CNY FX compared to previous sharp DXY weakness, indicating a preference for FX stability [4][20]. - Structural demand for foreign assets by Chinese investors is driven by a search for yield amid a domestic shortage of investable assets, leading to a shift in interest towards less liquid bonds [28][30]. Summary by Sections Current Trade Recommendations - Long 3-year CGB (FX-hedged) initiated on March 7, 2025, with a current yield of 1.39% and a profit of +14 basis points [2]. CNY FX and De-dollarization - The recent decline in CNY FX aligns with the PBoC's fixing strategy, but the pace has been more controlled compared to past episodes of DXY weakness [3][4]. - Chinese corporates sold approximately $17 billion in USD in May, a significant increase from $6 billion in April, but still below seasonal expectations [11][7]. - The net FX settlement ratio showed only a marginal improvement, indicating a lack of urgency among corporates to convert USD [11][13]. FX Swaps and Liquidity - Corporates have increasingly utilized FX swaps to access CNY funding without losing the USD carry, reflecting a strategic shift in managing currency exposure [11][16]. - Onshore USD liquidity has become excessively flush, with interbank USD rates falling, making CNY financing via FX swaps more expensive than direct borrowing [11][19]. Market Conditions and PBoC Actions - Proactive liquidity injections from the PBoC have alleviated funding concerns for banks, supporting a favorable environment for front-end CGBs [28][30]. - The PBoC has reiterated its commitment to enhancing monetary policy support and maintaining ample liquidity, which is expected to continue influencing market conditions positively [28][30].