CHINA: Central Bank to Conduct CNY1 trillion 3-month Outright RR June 6

At the Tokyo lunch break, JGB futures are weaker, -11 compared to the settlement levels. Trading has resumed today after an extended long weekend.

• Cash US tsys have twist-flattened, pivoting at the 20-year, with benchmark yields 2bps higher to 1bp lower.
• Japan's service sector showed a renewed upturn in April with the au Jibun Bank Purchasing Managers' Index rising to 52.4 from March's reading of 50.
• “Barclays pushes out its call for the next rate hike by the Bank of Japan to January 2026 from July 2025. Economists at the U.K. bank's FICC Research cite the BOJ's adjustment of its policy guidance and the reduction in its forecasts, particularly for growth, in the quarterly Outlook Report.” (per DJ via BBG)
• The cash JGB curve has bear-steepened, with yields flat to 5bps higher. The benchmark 10-year yield is 1.5bps higher at 1.279% versus the cycle high of 1.596%.
• Swaps are little changed, with swap spreads mostly wider. 

• PBOC will cut standing lending facility rates starting from May 8, according to a statement.
• The Standing Lending Facility (SLF) is a monetary policy tool used by the People's Bank of China (PBOC) to provide liquidity to financial institutions. Typically financial institutions use the facility to borrow short-term funding, using bonds to collateralize the loan.
• Overnight standing lending facility will be cut to 2.25% from 2.35%
• Cut 7-day SLF rate to 2.4% from 2.5%
• Cut 1-month SLF rate to 2.75% from 2.85%
• This is an additional measure that not only will free up liquidity (and capital) but could result in bond market selling over time and has the potential to put upward pressure on yields. 

• Amongst the raft of new initiatives announced today, a cut in the loan rates for the individual housing provident fund by 0.25bps was announced.
• This directly impacts home loans that have a maturity of greater than 5 years  with the PBOC governor suggesting it will save borrowers up to CNY20bn of interest annually.
• China has been in the grips of a multi year downturn for the property sector with recent data showing that used home prices have contracted every month since July 2021.
• The housing provident fund is a long-term housing savings plan made up of compulsory monthly deposits by both employers and employees. It can only be used by employees for house-related expenses.