EM ASIA CREDIT: MNI EM Credit Weekly

BBG sources note that “Japan’s financial regulator plans to ramp up scrutiny of about $67 billion of high-yield loans backed by government bonds and other assets that have become popular among regional banks”.

• The story notes that a senior FSA official asked lenders to disclose the size and market value of the related holdings earlier today. The Agency will review the disclosures and could take further action if deemed necessary, per the sources.
• The ramp up in the use of these structured notes have generated some fear surrounding risk management and the potential for large losses.
• The piece highlights that holdings can be counted as loans for accounting purposes, despite them bundling together JGBs and derivatives in a bid to enhance returns.
• Buyers of the structures do not have to mark to market.
• Regulators previously pointed to deeper scrutiny of the products.
• Brokerages selling these products are also set to come under scrutiny, with MUFJ already ceasing the sale of structured loans, per the report.

EURSEK saw a 0.2% knee-jerk higher following the Riksbank decision to a high of 11.0062, seemingly on the policy statement noting that "the forecast for the policy rate entails some probability of another cut this year". Although fading initially, the cross has since moved back towards the 11 handle at typing, now 0.3% higher on the session. 

• The May 27 high at 10.9937 in EURSEK was pierced, but a clear break of this level is required to signal scope for a push towards 11.0850 (April 28 high).
• See below for an illustration of the new rate forecast. Notably, the rate projection does not return to the 2.25% level by the end of the projection horizon. This level is the mid-point of the Riksbank's 1.50-3.00% neutral range, and had previously acted as somewhat of an anchor for the rate path in the medium term.
• This adds to the dovish impetus stemming from today's decision.

• ERH6 98.5625/98.1875ps 1x2 sold at 10.75 down to 10.5 in 20k.

Yesterday:

• ERH6 98.5625/98.1875ps 1x2, sold at 11.25 down to 10.50 in 21.6k.