MALAYSIA: CPI Up, Remains Below Target

• The PBOC issued a release showing that foreign institutions held CNY4.3 trillion of bonds via the interbank market.  
• This accounts for 2.5% of total 'custody volume' of bonds.  
• Overseas institutions hold CNY2.1tn of CGBs, CDs CNY1.15tn, Policy Bonds CNY810bn.  
• There are over 1,170 of overseas institutions who have access to the interbank market with just over 70% via Bond Connect in Hong Kong.  
• The release comes days after a China Daily article suggesting that China will over time move away from investing US Treasuries.  

Japan stocks are the standout, as headlines cross of a US-Japan trade deal, which will see the reciprocal tariff rate set at 15%. This includes the important auto sector as well. Benchmark Japan indices were last up +3%. US equity futures have edged higher, but Eminis are only +0.20% firmer at this stage. EU stock futures are doing better, last around 1.15% higher for Euro Stoxx. 

• The trade deal is seen as a win for Japan, particularly the 15% auto tariff (after 25% was threatened by US President Trump). Other details include $550bn of Japan investment into the US, although specific projects/timelines for this weren't apparent. Headlines also crossed that PM Ishiba plans to resign in August, which gave markets another leg higher. This could prompt further fiscal support for the economy. The Topix is up over 3%, last above 2925, which is fresh highs back to July last year. The auto and transport sub index is up close to 10%.
• China and Hong Kong stocks continue to rally as well. The HSI is up over 1%, while the CSI 300 has gained close to 0.75%, putting the index near 4150. General positive sentiment around US-China trade/relations is aiding sentiment. US Tsy Secretary Bessent will meet China officials in Stockholm next week, with the aim of extending the trade truce and expanding talks. US President Trump also stated overnight he may meet China President XI in the not too distant future (per BBG).
• Taiwan markets are firmer, the Taiex up over 1.10%, but South Korea's market has struggled for positive momentum as it can't sustain moves above 3200.
• In SEA, Thailand stocks are up strongly, last over +2% firmer, putting the index comfortably above the 1200 level. Indonesian stocks are also higher, along with other bourses in the region. 

Demand for today’s 40-year bond issuance was weak, with the high yield clearing well above dealer expectations. According to a Bloomberg survey, the market anticipated a yield of 3.35%, while the actual result came in at 3.375%.

• The auction’s cover ratio declined to 2.1273x from 2.2114x at the previous issuance.
• The current 40-year auction yield was tracking about 30bps lower than the previous auction.
• Moreover, the 10s40s curve had flattened 30bps since reaching its recent peak.
• Today’s result is likely to be regarded as poor.
• In early afternoon trading, the 40-year bond pricing is slightly cheaper than pre-auction levels.