EM ASIA CREDIT: MNI EM Credit Market Update - Asia
Asia EM $ credit is stable this morning, with govie/agency $ spreads for the most part unchanged, outliers being Korea (+4bp) and Thailand (-3bp). The backdrop is far from stable, with the Thai army chief raising concerns about domestic politics. Investors will be reminded of the 2014 coup d'état, and we are likely to see some weakness in Thai credit. In other news, LG Electronics is reported to restart IPO plans for its Indian unit (valued at c. $1.7bn). Indonesian Perusahaan Listrik Negara is reported to pay INR3.3T in dividends, which looks higher than rating assumptions. We also completed a fair value assessment of a proposed Hanwha Energy USA $ 3y (z+95bp).
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GOLD: Correction Continues As Risk Sentiment Improves
Gold prices are down 0.5% to $3212.15/oz so far today as better risk appetite weighs. They rose 0.8% to $3229.61 on Monday supported by safe-haven buying following Moody’s US sovereign downgrade. US Treasury yields are little changed in APAC trading, while the USD index is range trading and flat.
- Bullion reached $3232.72 earlier today but then trended down to $3204.71. It continues to trade between initial resistance at $3259.5, 20-day EMA, and initial support at $3121.0, 15 May low. It is almost 2% lower this month as more conciliatory trade developments have helped improve the global growth outlook, but with US tariffs only delayed and not scrapped uncertainty remains high.
- Asian equities are rallying with the Hang Seng up 1.4% but the S&P e-mini down 0.3%. Oil prices are little changed with WTI around $62.19/bbl. Copper is 0.4% lower and iron ore approaching $100/t. Silver is 0.5% lower at $32.19.
- Later the Fed’s Bostic, Barkin, Collins, Musalem, Kugler and Hammack appear and the Atlanta Fed’s conference continues. The ECB’s Lagarde and Cipollone attend the G7 meeting, while Buch, Cipollone and Donnery speak. In terms of data, US May Philly Fed non-manufacturing and Canadian April CPIs are released.
JGBS: Very Poor Demand Metrics For 20Y Auction, Tail Longest Since 1987
The 20-year JGB auction delivered very poor results across key metrics. The low price underperformed dealer forecasts, which were set at 99.80 according to a Bloomberg poll. Moreover, the cover ratio decreased to 2.5007x from 2.9639x in the previous auction, and the auction tail lengthened dramatically from 0.34 to 1.14 – the longest since 1987.
- As noted in the auction preview, today’s offering featured an outright yield near its cycle high, approximately 5bps above last month’s level.
- Moreover, the 10/20 yield curve remained near its recent high, its steepest since 1999.
- As a consequence, this result is likely to be seen as significantly worse than the performance observed in the 30-year JGB auction earlier this month.
- Post-auction, the 20-year JGB has cheapened 6bps.
JGBS AUCTION: 20-Year JGB Auction Results
The Japanese Ministry of Finance (MOF) sells Y750.9bn 20-Year JGBs:
- Average Yield: 2.453% (prev. 2.349%)
- Average Price: 99.29 (prev. 100.69)
- High Yield: 2.540% (prev. 2.374%)
- Low price: 98.15 (prev. 100.35)
- % Allotted At High Yield: 80.8791% (prev. 40.8163%)
- Bid/Cover: 2.5007x (prev. 2.9639x)
