EM ASIA CREDIT: Krung Thai Bank Public (KTBTB, Baa1/BBB/BBB+) upgraded

• Following the hawkish cut from the RBA, the AUD/NZD is testing recent highs, we have made session highs of 1.1141 vs last weeks ytd highs of 1.1149, a break here would open a move to Nov highs of 1.1180.
• The AU-NZ 2yr swap has jumped 8bps to 44bps.

JGB futures are sharply weaker and at session lows, -28 compared to settlement levels.

• “The Bank of Japan should continue raising interest rates if data allows to maintain room for policy adjustments later, according to former Bank of Japan Deputy Governor Hiroshi Nakaso” (per BBG)
• The market remained steady through to the lunch break but dropped sharply after today’s 20-year auction revealed weak demand across key metrics.
• First, the auction low price fell well short of dealer forecasts. Secondly, the cover ratio declined to 3.06x from 3.79x in the previous auction. Lastly, the auction tail widened significantly to 0.55 from 0.04, signalling a notable deterioration in demand.
• Cash US tsys flat to 4bps cheaper in today’s Asia-Pac session, with a steepening bias following yesterday’s holiday, intensifying the sell-off at the long end of the JGB curve.
• Cash JGBs are flat to 5bps cheaper across benchmarks, with the benchmark 20-year leading the way.
• Swap rates are flat to 2bps higher, with swap spreads mixed.
• Tomorrow, the local calendar will see Trade Balance, Core machine Orders and Tokyo Condominiums for Sale data alongside BoJ Rinban Operations 1-10-year and 25-year+ JGBs. 

RBA Governor Bullock’s press conference reflected the cautious tone of the statement but she said there was a “consensus” for a cut. She said that today’s easing doesn’t mean that rates will follow the market’s rate path as it will need more data and evidence of moderating inflationary pressures before removing more restrictiveness. Currently market pricing has around 3.6% rates by year end. Rates won’t return to pandemic-era levels.

• Bullock warned that the RBA has “to be careful not to get ahead” of itself and that the tight labour market was the strongest argument to stay on hold.
• The stabilisation of trimmed mean at 2.7% in the updated forecasts was mentioned and Bullock pointed out that it was derived using the market’s expected rate path and given that results in inflation staying above the band mid-point its pricing is “unrealistic”. But rates were still cut as it is “more confident” inflation will return to the band and that it didn’t need to be there already to ease.
• Bullock stated that the bank can’t yet “declare victory on inflation” and said that the Board would like to see lower wage and services inflation, sustained moderation in housing costs plus some recovery in supply helped by recovering productivity growth.
• The Board understands disinflation is “bumpy” but it will continue to look for continued easing of inflation in the upcoming quarterly/monthly data. If that reverses though, the Board will have to consider the developments “seriously”.
• The RBA looks at what could impact Australia in the long term and increased protectionism has been a part of that consideration but the issue remains highly uncertain and “unpredictable”. Bullock reiterated that it only includes what it knows in its forecasts. 
• The statement noted that the labour market “tightened a little further in late 2024” and Bullock noted that this could be signalling that there is more economic strength which could potentially stall the disinflation process.