CHINA: Bond Futures Edge Lower in Morning Trade

Asia Pac stocks are mixed in the first part of Monday trade. This comes despite a better tone to both US and EU equity futures. US futures were last up 0.40-0.55%, with the tech side leading. EU futures were around +1% higher, as market took some comfort from the earlier headlines around a 15% tariff deal between the US and EU (for most EU exports to the US). Positive spillover has been limited to this region so far today. 

• Japan markets are weaker, the Topix off around 0.50%, while the NKY 225 is down around 0.90%. Sell-side analysts have noted profit taking ahead of key earnings in the Chip sector as a potential headwind (via BBG), while political uncertainty also continues. PM Ishiba has vowed to stay on as PM, despite recently losing upper house elections (and after onshore media outlets indicated he would resign in August). 
• In Hong Kong, markets are modestly higher, the HSI up around 0.4%, while the CSI 300 is down a touch in China. Over the weekend we saw profit results remain negative in y/y terms for June, albeit up from the May decline.
• South Korea's Kospi has been volatile, initially rallying at the open, aiding by a large Samsung chip order (for Tesla) but once again the index has struggled above 3200. Focus remains on US-South Korea trade negotiations ahead of the Aug 1 deadline at the end of the week, with officials set to meet later in the week (reportedly July 31).
• Thailand markets are out today, as the US attempts to lead efforts to de-escalate tensions on the Thailand/Cambodian border.
• Indonesia is up +1.25%, one of the better performers in SEA so far today. The initial tone in Indian markets is for modest downside, continuing the recent run of underperformance for these markets. 

The TYU5 range has been 110-26 to 110-30+ during the Asia-Pacific session. It last changed hands at 110-30, down 0-01 from the previous close. 

• The US 2-year yield is trading around 3.923%.
• The US 10-year yield is trading around 4.388%.
• The 10-year yield has moved back towards its pivot within the wider range 4.10% - 4.65%, decent supply was seen around 4.30/35% first up. A decent bounce off its support but the move has failed to follow through above 4.40% for now. The Data this week should provide more clarity going forward.
• (Bloomberg) - “Strong demand for investment-grade corporate bond supply is likely to overwhelm a lack of supply this week. That can act to narrow US high-grade bond spreads.”
• (Bloomberg) -  “Investors pulled $3.9 billion from Treasuries in June and added $10 billion to US and European IG company debt — a shift away from the idea that US government debt is the safest bet.”
• Data/Events: Dallas Fed Manf. Activity

Fig 1: 10-Year US Yield 120min Chart

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

• With last week being the softest for bonds in two months, the morning session today has seen bond futures bounce back.  
• Up +0.19 at 108.38, the 10 year bond future remains below all major moving averages; the nearest being the 20-day EMA of 108.70.
• The 2-year bond future is up +0.03 at 102.35 and sits just below the 20-day EMA of 102.41 which it traded through earlier in the month.