The fear of unwinding carry trade in China

Chinese carry trade had been underpinned by the expectation of mid-term or long-term appreciation of RMB or semi-pegging with USD for a long time at least.

It is known that official investment from carry trade is about 1 trillion dollar, but unofficial or real carry trade is almost 3 trillion dollar, market participants say. How a huge amount!

By the way, since CNY's rapid devaluation caused rising bond yield in China with the fear of capital outflow and thus, tightening of liquidity condition. Credit spreads widened, as well. But, for recent a few days, the bond yield seems to be in peace. Below chart is Chinese government bond 5 year rate in an inter-bank market.

What does it mean? Technical relief on a process of upward trend? Or because market participants expect additional RRR or/and base rate cut?

Someone is arguing that this CNY devaluation is in line with preventing carry trade money from the outflow. If then, is almost a 5% of depreciation last week sufficient for China? If not, depreciation of RMB would be more speedy until markets rarely expect additional devaluation. On the side of real interest rate or liquidity conditions, toward the end of year, the monetary condition would ease automatically as CPI would be higher. If then, PBOC would complete their mission when they are alive until winter. However, during this period, carry trade money and Asian EMs would be suffered.