EM ASIA CREDIT: Adani Ports: Outlook upgrade

US bond futures have failed to kick on from the overnight lead in and are down modestly during the morning session in Asia.  The 10-Yr is down -02 at 112-14+ in the morning session.  TYH6 had broken above the 100-day EMA of 112-14+ overnight but with the losses this morning is back near the key tech level. 

Cash is weak with yields +0.7 - 1.1bps higher across the curve.  

• The 2-Yr is at 3.498%  +0.8bps today
• The 5-Yr is at 3.709%  +1.1bps today
• The 10-Yr is at 4.157%  +1bps today
• The 30-Yr is at 4.826%  +1.1bps today

Last night's US$75bn 6-week bill auction was well received with the yield down on last, direct bids accepted up and bid to cover down.  Tonight sees a US$69bn 17-week bill auction and a US$13bn 20-Yr re-opening.  

The BBDXY range overnight was 1201.94 - 1206.37, Asia is currently trading around 1205, +0.02%. The USD broke below 1204 in reaction to the US data overnight, but it could not follow through and has recouped most of yesterday's losses. On the day I am a little confused perhaps some patience and look for initial resistance again back towards the 1208-110 area and above here the more important 1213-1216 area where sellers should remerge initially. Can this 1204 area provide some support again if not a move below here would target 1198-1200. 

• Mohamed A. El-Erian on Yahoo Finance: "We are likely to see continued solid GDP growth and a weakening labor market, that is a relatively new phenomenon, and it's one that puts the Fed in a difficult position."
• Joseph Wang On X: “Unemployment rate rises to 4.6%, in part due to higher labor force participation. That's trending higher and above the Fed's median dot plot projection. Low wage growth also suggests weakness. Fed may have to go from slightly above neutral to accommodative.”
• The BBDXY Average True Range for the last 10 Trading days: 359 Points

Fig 1: BBDXY Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P

ACGBs (YM -2.0 & XM -1.0) are little changed on a data-light day.

• Today’s auction result for the Oct-36 bond extended the recent trend of firm pricing for ACGBs, with the weighted average yield printing 0.33bps through prevailing mids. Moreover, demand was robust, as reflected by a cover ratio of 3.7100x.
• Cash US tsys are slightly cheaper in today’s Asia-Pac session.
• Australia’s mid-year budget update shows the government continuing to run sizeable deficits over the forecast period, despite tighter spending controls and expectations of stronger revenue from an economic recovery. The underlying cash deficit is projected at A$36.8 billion, or 1.3% of GDP, in the year to June 2026, with deficits narrowing only gradually to around 1.1% of GDP per year by fiscal 2029. The government highlighted A$20 billion in savings identified in the MYEFO and said it will constrain average real spending growth to 1.7% over the seven years to 2028–29, well below the 30-year average of 3.3%.
• Cash ACGBs are 1-2bps richer with the AU-US 10-year yield differential at +58bps.
• The bills strip pricing is -1 to -3 across contracts.
• RBA-dated OIS pricing shows tightening across all meetings, with the probability of a 25bp hike rising from 40% for February to 100% by June and 160% by December 2026.  
• Tomorrow, the local calendar will see Consumer Inflation Expectation.