EM ASIA CREDIT: MNI EM Credit Market Update - Asia
Asia EM $ govie/agency spreads have shown a weaker bias today with spreads 1-2bp wider. The outlier being South Korea (+3bp), with President Lee indicating he wasn’t sure if South Korea can conclude U.S. tariff talks by July 8. Asia equities are a mixed bag being +1/-1% on the day. Newsflow is relatively quiet, that said the Malaysian sovereign wealth fund, Khazanah Capital, which was reported to be linked to a 1.5% sale of a stake in Tenaga Nasional, has reportedly called the sale off due to a negative tax ruling on Tenaga Nasional announced today. In the new issue space, we have a $benchmark 3Y from Zhangzhou Jiulongjiang, and an update on the Shinhan Bank $ 5Y mandate, which is now expected to come on Monday.
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CHINA: Bond Futures Little Changed Post OMO
- China's bond futures edged lower today after a significant withdrawal of liquidity during this morning's OMO.
- The 10YR future is lower by -0.04 at 108.67 and is at the mid-point of the 50-day EMA of 108.72 and the 100-day EMA of 108.64.
- The 2YR future is lower by -0.03 at 102.36 and remains below all major moving averages. The nearest being the 20-day EMA at 102.43.
- The 10YR CGB is at 1.70%
- Despite weaker than expected, this morning's poor May CAIXIN PMI has not impacted sentiment as investors extrapolate the need for further stimulus, driving equity markets higher.
JGBS AUCTION: 10-Year JGB Auction Results
The Japanese Ministry of Finance (MoF) sells Y1,962.1bn 10-Year JGBs:
- Average Yield: 1.512% (prev. 1.274%)
- Average Price: 99.04 (prev. 101.10)
- High Yield: 1.513% (prev. 1.294%)
- Low price: 99.03 (prev. 100.92)
- % Allotted At High Yield: 66.8994% (prev. 44.9598%)
- Bid/Cover: 3.6627x (prev. 2.5440x)
US TSYS: Viewpoint of Jim Bianco On Rates
Jim Biance posted a thread on X on why the risk is that long-term rates go higher: “Polymarket recession odds peaked at 65% on May 1st, the April ISM release date, suggesting Liberation Day and the 20% stock market correction did not damage the economy, as the "soft data" warned. Subsequent April data confirmed this. Will May see more of the same?”
- “The prevailing narrative in the market for months has been that the labor market is going to fall apart, forcing the Fed to cut rates. This has not happened, and so far, the "soft" (survey) data have been wildly off in predicting the economy.’
- “ISM Employment upticked in May from April. The first monthly "May" data point suggests the labor market is still not weakening.”
- “ISM New Orders are included in the Index of Leading Economic Indicators (LEI). They slightly increased in May compared to April. In other words, this component of LEI is also NOT slowing.
- “This series, along with the release of construction spending today, pushed the Atlanta Fed's GDPnow to an eye-popping 4.6%.”
- “No way an organization worried about its reputation is going to cut rates if we're pushing towards 5% Q2 GDP. The market views it this way. The June 18 FOMC has only a 5% probability of a cut, or 95% of no move. July 30 is just 21%, or 79% of no move.”
“Long rates are already in an uptrend (below). Throw in a rate cut with a 5% GDP growth, and the risk is that long-term rates soar, damaging the Fed's reputation.”
Fig 1 : US 30-Year Yield Weekly Chart
Source: MNI - Market News/Bloomberg
