SOUTH KOREA: Bonds Rally on Won Intervention
- The last reported outright bond purchase by the BOK occurred earlier in the month when it purchased 1.5 trillion won worth of government bonds. Authorities have also emphasized that they are ready to deploy further stabilizing measures pre-emptively if market conditions deteriorate.
- Over the last 24 hours, South Korean authorities, including the BOK and the Ministry of Economy and Finance, issued a strong verbal intervention today to stabilize the foreign exchange (FX) market and curb the won's weakness.
- This has given Korean bonds a boost with bond futures up strongly and KTB yields down, potentially pointing to expectations for further intervention in bond markets.
- The 10-Yr bond future is up +0.39 today at 113.10 and is near the 20-day EMA of 113.14.
- The 3-Yr bond future is up +0.11 at 105.51, breaking above the 20-day EMA of 105.43. Topside resistance from the 50-day EMA is at 105.81.
- Cash is strong with yields down 1.5-5.0bps, with the 3-Yr outperforming.
- The 3-Yr is at 2.926% down 5bps today.
- The 10-Yr is at 3.345% down 3.9bps today. The 10-Yr has traded in a range of 3.253% to 3.444% over the last month with today's rally taking it back to the mid point of that range.
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USD: BBDXY - Stalled Ahead Of 1230, Needs To Hold Above 1223/24
The BBDXY range overnight was 1224.68 - 1228.98, Asia is currently trading around 1227, +0.10%. The USD stalled toward 1230 heading into the weekend, this morning risk has opened strongly but with Japan out the reaction has been pretty muted. While the price remains above 1223/24 I would be skewed toward expressing a long, looking for a retest of the 1230-1240 area at some point. A move back through this support and are back in the 1210/15-1230/35 range.
- Nick Timiraos posted an excerpt from Bessent interview with CNBC in which he said, “Bessent: Inflation is up because of services, not goods. "If you look at the data, that imported goods, the inflation has actually been flat. Inflation is up because of the service economy and services. So that has nothing to do with tariffs."
- The BBDXY Average True Range for the last 10 Trading days: 369 Points
Fig 1: BBDXY Daily Chart
Source: MNI - Market News/Bloomberg Finance L.P
CHINA: Central Bank Injects CNY55.7bn via OMO
The CFETS Pledged Repo Deposit Institutions 7 Day Weighted Average declined throughout the week last week as the PBOC injected over CNY 550bn of liquidity via the daily OMO. With sizeable maturities ahead this week, and market sentiment finely balanced, markets will watch closely for liquidity movements as a useful catalyst for the broader market outlook.
- The PBOC issued CNY338.7bn of 7-day reverse repo at 1.4% during this morning's operations.
- Today's maturities CNY283bn.
- Net liquidity injection CNY55.7bn.
- The PBOC monitors and maintains liquidity in the interbank system through the issuance of reverse repo.
- The CFETS Pledged Repo Deposit Institutions 7 Day Weighted is at 1.40%, from prior close of 1.44%.
- The China overnight interbank repo rate is at 1.30%, from the prior close of 1.30%.
- The China 7-day interbank repo rate is at 1.40%, from the prior close of 1.45%.
CNH: USD/CNY Fixing Lower But Above Recent Troughs, Fixing Error Steady
The USD/CNY fix moved lower, back to 7.0847, but this is above recent lows (7.0816). The fixing error was little changed at -289pips, versus -315pips on Friday. The fixing outcome shouldn't change broader USD/CNH trends, where the bias remains to fade upticks. Downside focus will rest on a renewed test under 7.1000, but we are little changed post today's fixing (last around 7.1075, up a touch on end Friday levels). Broader USD trends are a little firmer, with the BBDXY up close to 0.10%.
