EM ASIA CREDIT: MNI EM Credit Market Update - Asia
Asia EM USD sovereign and agency spreads are trading soft this morning with spreads around 1-2bp wider, with no particular outliers. In term of newsflow, todays speech by Fed Chair Jerome Powell, and what it may mean for rates will be key for sentiment. On the geo-political front, no new progress between India and the US, with China showing support for India.
No new issuance this morning, though the market does appear to be opening, with more mandates expected next week. Swire Pacific printed a USD 7Y deal yesterday, pricing at T+65bp versus T+100bp area, the books were nearly 10x subscribed.
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CHINA: Bond Futures Down Heavily in Morning Session
- China bond futures are down in the morning session with the 10-year having its largest one day fall since May.
- The 10-year is down -0.20 at 108.43 and has traded below all major moving averages which it had not done since late May.
- The PBOC withdrew liquidity during this morning's OMO marking three consecutive days of withdrawals.
- The 2-year future is also down, by -0.04 to 102.36 and remains below all major moving averages. The nearest being the 20-day EMA of 102.43.
- The 10YR CGB is higher by +1.5bp to 1.71%
GOLD: US-Japan Trade Deal Boosts Risk Appetite Weighing On Gold
Gold prices have trended moderately lower today following the conclusion of a trade deal between Japan and the US lifting optimism that others, especially the EU and China, may also be able to reach an agreement before August 1. Bullion had a strong start to the week rising almost 2.5% over Monday/Tuesday. Today it is down 0.2% to $3423.6/oz but off the intraday low of $3419.27 with the BBDXY USD index and US yields slightly higher.
- Gold continues to be supported by concerns over Fed independence.
- Silver is also lower at -0.1% to $39.25 after rising to $39.38 but off today’s low of $39.13. It was up almost 3% over Monday/Tuesday.
- US imports from Japan, including autos, will face a 15% tariff down from the 24% announced in April but higher than the current average below 5%. This lower rate is in exchange for $550bn of Japanese investment in the US.
- Treasury Secretary Bessent is scheduled to meet China officials in Stockholm next week with the aim of extending the current hold on tariffs.
- The US-Japan trade deal has driven an improvement in risk appetite with equities higher (Nikkei +3.2%, Hang Seng +1.1% & S&P e-mini +0.2%). Oil prices are higher with WTI +0.3% to $65.48/bbl and copper up 0.9%.
- Later June US existing home sales and preliminary July euro area consumer confidence print.
CHINA: PBOC Provides Update on Foreign Ownership of Bonds
- 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.
