After Trump’s Claims, China Says It Helped Ease India-Pakistan Military Tensions

In response to US President Donald Trump’s actions, China has made an unexpected remark about the tension between India and Pakistan. Following their military confrontations earlier this year, China said on Tuesday that it acted as a mediator to reduce tensions between the two nations.

China claims mediation role between India and Pakistan

Speaking at the Symposium on the International Situation and China’s Foreign Relations, Chinese Foreign Minister Wang Yi said that the Xi Jinping-led administration mediated a number of international disputes. Chinese Foreign Minister: China resolved hotspot problems

The Chinese Foreign Ministry posted Wang Yi’s comment on X, saying, “We have adopted an objective and just attitude, and worked on resolving both symptoms and core causes, to establish peace that lasts.” We mediated in northern Myanmar, the Iranian nuclear issue, the tensions between Pakistan and India, the problems between Palestine and Israel, and the latest confrontation between Cambodia and Thailand in accordance with this Chinese method of resolving hotspot crises.

 

Context of US involvement and Operation Sindoor

It is crucial to remember that Wang Yi’s comments follow Donald Trump’s frequent assertions that the US prevented India and Pakistan from going to war. The terror assault in Pahalgam on April 22, which mostly targeted tourists, sparked a series of fierce military conflicts. in reaction to the 26-person terror attack in Jammu and Kashmir.

India responded by initiating Operation Sindoor, which targeted Pakistan’s and Pakista

n-occupied Kashmir’s terror infrastructure. Trump said that he was a key player in mediation attempts, despite India’s repeated denials of any third-party mediation.

How the military standoff ended

India, however, is still certain that direct military-to-military contact ended the four-day conflict. The Director General of Military Operations (DGMO) of Pakistan called the Director General of Military Operations (DGMO) of India after India insisted that its strategic and precise strikes had hit nine terrorist bases in Pakistan. As a result, both parties decided to cease all firing and military action on land, in the air, and at sea as of May 10.

China’s latest assertion has brought attention back to the role it plays in preventing cross-border shelling, given its strong defense relations with Pakistan. In November, the US-China Economic and Security Review Commission released a report accusing China, Pakistan’s biggest weapons supplier, of planning a misinformation campaign after Operation Sindoor.

China’s reaction during Operation Sindoor

On the first day of Operation Sindoor, China apologized for India’s attacks and urged moderation. “China considers India’s military operation early this morning regretful,” the Chinese Foreign Ministry said on May 7. The current state of affairs worries us.

RBI rate outlook boosts interest in short-term bonds

Due to the RBI rate forecast, investors pour money into India’s short bonds.

In India, bond carry trades—which aim to benefit on the difference between cheap financing costs and high bond yields—are becoming more and more common, and market observers anticipate that the tactic will continue to be popular in 2019.

 

Why carry trades are gaining traction

By borrowing money overnight and using the profits to purchase five-year notes, investors may earn around one percentage point, the highest amount in more than two years. Expectations that interest rates would not likely rise for some time are fueled by the Reserve Bank of India’s projection that inflation will only gradually increase near its 4% objective.

Five persons acquainted with the situation claim that foreign banks with bond trading desks in India are among those jumping into the market and expanding their holdings. Due to the confidentiality of the trade activity, they refused to identify themselves.

Market expert views

According to Vikas Jain, head of Bank of America’s fixed income, currencies, and commodities trading in India, next year “will be more of a carry trade year rather than pure capital gains since it is going to be a two-way market.” “There is a great chance to engage in a carry trade via state bonds or short-maturity government assets since the policy rate is low at 5.25%.

Even if the central bank has little further space to lower interest rates, the change represents a cautious approach to profit from high returns on Indian bonds in a low inflation scenario. Earlier this month, the RBI lowered its policy rate to a level not seen in over three years and hinted that it would lower it much more if inflation data stays low.

Bond market performance trends

Over the previous three months, demand for three- to five-year bonds has increased the highest, assisting short-term debt in outperforming longer maturities. Since early September, the yield difference between three- and ten-year notes has increased by around 25 basis points as short-term rates have been mostly steady while poor demand drove long-term yields to a three-month high.

According to Sameer Karyatt, head of trading at DBS Bank in Mumbai, “the major factors supporting these carry trades are excess banking liquidity, which maintains overnight rates near the policy rates, and the projected maintenance of policy rates at present levels over the next quarters.”

Risks and future outlook

The transaction is not risk-free, however. Mark-to-market losses that exceed the carry might result from a significant increase in short-term rates. According to Australia and New Zealand Banking Group, a sharp increase in inflation or fresh rupee volatility—the currency has recently reached a number of record lows—could rapidly reduce profits.

According to VRC Reddy, head of treasury at Karur Vysya Bank, concentrating on short-term bonds helps reduce market risk. According to him, the inclination for shorter bonds also indicates the belief that significant rate reductions are unlikely in the foreseeable future. Carry trades are anticipated to continue in the Indian bond market until 2026 by both DBS and ANZ.

According to Nitin Agarwal, head of trading at ANZ in Mumbai, “locally financed carry trades flourish in an environment of steady to reduced financing rates.” “The three to five year segment has performed rather well and is anticipated to gain from this theme.”