EM ASIA CREDIT: MNI EM Credit Market Update - Asia

Asian equity markets are mostly trading with a positive footing in the first part of Monday trade. The Nikkei 225 is up around 1%, likewise for the Hang Seng in Hong Kong. The Kospi continues to be an outperformer, up over 1.6%. 

• We had a positive lead from US markets on Friday, the SPX up a little over 1%. US data beats, particularly on the wages may have helped. Also, today in London we have US-China trade talks resuming. Positive themes around exports of rare earths resuming to the US and the EU is another positive ahead of these talks.
• Fallout from protests in major US cities (with Trump calling in the National Guard for Los Angeles) is not impacting US equity sentiment greatly at this stage.
• Still, China's CSI 300 is up only modestly, last +0.18% at the lunchtime break, putting the index near 3881. Earlier China data showed CPI remain in deflation, while PPI deflation worsened further. This underscores on-going policy support needs in 2025. On the trade front, export and imports where both below forecasts, with trade to the US continuing to fall.
• The HSI is up +1% at the break, with the tech sub index up +2.3% at this stage.
• The Kospi continues to outperform, up over 1.6%. This puts the index within striking distance of July 2024 highs around 2900. Offshore investors have bought $348mn of local shares today. Optimism around the domestic outlook continue to buoy sentiment.
• In South East Asia, gains are more modest, mostly under 0.50%. Australian and Indonesian markets are closed today. 

The first part of Monday US Tsy trade has seen outperformance, led by the front end. For the 2-5yr tenor yields are off around 3bps. The 10yr Tsy yield is back under 4.49%. 

• The 10yr Sep Tsy future has crept higher throughout the session, last at 110-02+, +05+, versus end Friday levels. A direct catalyst for the move haven't been obvious, although we have only given back a modest part of Friday's sell-off.
• For the 2yr Tsy yield, we have struggled once we approach the 4.05% region, going back to mid March. Despite Friday's data beats in the US, there still may be a sense of more downside risks to growth lie ahead, which in turn could be capping upside yield momentum.
• The 10yr, just under 4.49%, remains fairly close to the mid-point of recent ranges.
• Looking ahead, we have wholesale inventories tonight, then tomorrow NFIP small business sentiment and NY Fed inflation expectations. The main focus will be on Wednesday's CPI print though.  

New Zealand government bond yields sit firmer but away from session highs. Spill over from softer US Tsy yields, particularly at the front end of the curve, has been evident as Asia Pac Monday trade has unfolded. 

• The 10yr was last around 4.64%, still up around 3bps for the session. Earlier highs were close to 4.67%. Other parts of the curve are up around 2-3bps, except for the 2yr, which is back to flat, last around 3.39%. The US 2yr struggled to build on Friday momentum, we were last near 4.00%.  
• NZ-US 2yr swap spreads were last near -62bps, just up from Friday lows.
• On the data front, we had Q1 manufacturing volumes up 2.4%q/q, against a revised 1.2% gain in Q4. Activity was +5.1%q/q, versus 3.0% in Q4.
• RBNZ Chief Economist Conway was interviewed today on Radio NZ and said that the central bank expects core inflation to moderate towards the 2% band mid-point by end-2025 going into 2026 despite the recent pickup in headline inflation. He also expects growth to improve later in the year helped by easier monetary policy, but the “labour market is pretty flat”.
• The local data calendar is empty tomorrow.