BONDS: Away From Best Levels
Core fixed income markets have drifted away from their early Asia highs, with a lack of headline catalysts observed. U.S. Tsy futures are now back to near enough unchanged levels vs. settlement across the curve, while the major cash benchmarks run somewhere in the region of 1-2bp cheaper on the session, with the front end leading the way lower. We haven’t seen much in the way of major headline flow to drive the move and e-minis are holding lower. Perhaps it is a case of some regional participants being a little less concerned re: the previously touted Pentagon worry surrounding the potential for Russia President Putin to make nuclear threats if the Ukraine conflict drags on. The start of the re-opening of factory production in China’s Shenzhen, in addition to subway services (at least across 5 districts that have achieved “COVID zero”) may also be feeding into price action.
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BOJ: BoJ Makes Rinban Purchase Offers
The BoJ offers to buy a total of Y925bn of JGBs from the market:
- Y450bn worth of JGBs with 1-3 Years until maturity
- Y425bn worth of JGBs with 5-10 Years until maturity
- Y50bn worth of JGBs with 25+ Years until maturity
KRW: Unemployment Falls, Covid Cases Surge
South Korean won leads gains in Asia EM space as easing geopolitical worry and reassuring local labour market data have outweighed continued surge in South Korea's Covid-19 infections.
- Spot USD/KRW slipped this morning and last operates -3.40 figs at KRW1,196.55, with bears looking for a fall through the 50-DMA at KRW1,191.54 towards the 100-DMA at KRW1,186.78. Bulls need a clearance of Feb 11 high of KRW1,201.50 before targeting Jan 28 high of KRW1,207.25.
- USD/KRW 1-month NDF last seen at KRW1,197.20, a touch lower on the day. Bears keep an eye on the 50-DMA at KRW1,194.01, with bulls looking to a move through Jan 28 high of KRW1,214.39.
- South Korea's seasonally adjusted unemployment rate slipped to 3.6% in January from 3.8% prior, below the consensus forecast of 3.7%. The economy saw the largest annual gain in new jobs since 2000, when it was recovering from the Asian Financial Crisis.
- South Korea's daily Covid-19 cases surged past 90,000 for the first time since the outbreak of the pandemic, as the Omicron variant continues to fuel a rapid spread of infections.
US TSYS: J.P.Morgan Assess ’21 TIC Flow Data
After the release of December’s TIC flow data, J.P.Morgan note that “foreign investors bought $44.2bn long-term Treasuries over the month. Private institutions once again drove this flow, adding $53.3bn Treasuries, a step down from the previous month’s record pace but well above the 6-month average. Meanwhile official institutions sold $9.7bn, close to the average pace observed recently. Geographically, EM countries shed Treasuries over December, while the strongest buying came from the Cayman Islands - the country added $39.3bn in December, the largest monthly purchase since May 2018, likely representing short covering from the levered investor community, following $162bn of sales over the first 11 months of the year. Recall that the Cayman Islands has relatively low foreign exchange reserves and many hedge funds are domiciled there.”
- “With data now in hand for the full year, we reiterate the themes that we touched upon last month: when we strip out the Cayman islands, which shed Treasuries for much of the year, private demand firmed notably in 2021 compared with the pace of demand in 2020. We think valuations are driving this to an extent: the currency-hedged yield pickup for foreign-funded investors remains near their highest levels in more than 5 years. Looking ahead, we think foreign demand will strengthen in 2022, driven by attractive valuations and modest growth in FX reserve balances.”
