EM ASIA CREDIT: China Vanke (Caa2/B-/CCC) boosts liquidity...again
"*FITCH DOWNGRADES CHINA VANKE TO 'CCC+', VANKE HONG KONG TO CCC" - BBG
"*SHENZHEN METRO TO OFFER UP TO 1.55B YUAN LOAN TO VANKE" - BBG
"*CHINESE BUILDER VANKE REPAYS ITS ONLY DOLLAR BOND DUE THIS YEAR" - BBG
• Vanke overnight was topical, with Fitch downgrading the rating to CCC following Q1 results weaker than expectations. Indeed the cash ratio at end Q1 was 0.5x and the agency recognises that shareholder support (Shenzhen Metro Group ) is key for refinancing.
• This in mind, the Vanke board approved a loan from Shenzhen Metro for RMB1.55bn yesterday, which creates some positive bias for valuations, though this compares to CNY16.3bn in remaining public debt.
• Refinancing has continued, and there are no further $ bonds maturing this year, the next due in 2027.
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AUSSIE BONDS: Richer, Little Changed After Minutes, RBA Remains Cautious
ACGBs (YM +2.0 & XM +7.0) are little changed after the release of the RBA Minutes for the April Meeting. In summary:
- The Board judged that economic conditions were broadly in line with forecasts, with inflation gradually declining and the labour market still tight. Risks to the outlook were seen as balanced, including global trade uncertainty and domestic factors like wages and productivity.
- Given this, the Board decided to keep the cash rate unchanged, emphasising the need for caution. Future decisions will depend on incoming data, especially on inflation, employment, and global developments.
- The Board reiterated its commitment to bringing inflation back to target without sacrificing gains in employment and stressed the importance of flexibility in policy
- Members discussed the staff’s latest assessment of the pace at which the RBA’s holdings of government bonds were running down. The current approach is to hold these bonds until maturity.
- Cash US tsys are 1-3bps richer, with a flattening bias, in today’s Asia-Pac session.
- Cash ACGBs are 2-7bps richer with the AU-US 10-year yield differential at -2bps.
- The bills strip has bull-flattened, with pricing +1 to +4.
- RBA-dated OIS pricing is flat to 4bps softer across meetings today. A 50bp rate cut in May is given a 39% probability.
FOREX: NZD and AUD Outperforming, Kiwi Above 200-day MA
NZD and AUD both outperforming in the G10 space, led by the Kiwi. Both currencies are through their respective highs from Monday, albeit the NZD more convincingly. NZD/USD was last near 0.5900, above its simple 200-day MA, see the chart below. AUD/USD was above 0.6340, with headlines from the RBA Minutes crossing. The RBA is maintaining a cautious tone around the timing further rate cuts.
- Generally green Asia Pac equity trends are helping the Kiwi and AUD, with the MSCI Asia Pac index up 1%, while US equity futures are back close to flat. We were down close to 0.50% at one stage in the first part of trade.
Fig 1: NZD/USD Testing Above Simple 200-day MA
Source: MNI - Market News/Bloomberg
CHINA: Central Bank Drains Liquidity during OMO
- The PBOC issued CNY164.5bn of 7-day reverse repo at 1.5% during this morning’s operation.
- Today’s maturities CNY167.4bn
- Net liquidity withdrawal CNY2.9bn.
- The PBOC monitors and maintains liquidity through the issuance of reverse repo.
- The CFETS Pledged Repo Deposit Institutions 7 Day Weighted Average is at 1.51%, from 1.70% yesterday.
- The China Overnight interbank repo rate is at 1.65%, from 1.50% yesterday.
- The China 7-day interbank repo rate is at 1.72%, from 1.70% yesterday.
