CNH: USD/CNY Fixing Edges Up, Error Term Re-Widens

Today’s auction demonstrated adequate demand for ACGBs, with the weighted average yield settling 0.88bps below the prevailing mid-yield, according to Yieldbroker. However, the cover ratio declined dramatically to 3.2200x from 4.2143x at the previous auction, underscoring diminished investor interest.

• As noted in our auction preview, the auction offered an outright yield that fell dramatically in April as global equity markets reacted negatively to President Trump’s tariff announcements.
• The outright yield sat 50-55bps lower than the previous outing and ~80bp below the November 2024 peak.
• Following the auction, the ACGB April 2029 cash line and YM futures contract remained relatively stable, with minimal movement, indicating a balanced market reaction.
• Today’s results highlight sustained demand for ACGBs, even in the face of lingering global bond market challenges.

The AOFM sells A$1000mn of the 3.75% 21 May 2029 bond, issue #TB1487:

• Average Yield (%): 3.4302 (prev. 3.9558)
• High Yield (%): 3.4325 (prev. 3.9575)
• Bid/Cover: 3.2200x (prev. 4.2143x)
• Allotted at Highest Accepted Yld as % of Bid at that Yld (%): 93.1 (prev. 50)
• Bidders: 38 (prev. 33), 14 (prev. 10) successful, 8 (prev. 5) allocated in full

European natural gas fell sharply on the first trading day following the Easter holiday. It was down 3.7% to EUR 34.35 after rising to EUR 35.79 early in the session and then falling to EUR 33.93. Prices are now over 15% lower in April driven by the end of the heating season and concerns that increased protectionism will weigh on global energy demand. 

• Steady imports of LNG are allowing Europe’s refilling process to take place after storage ended the winter at multi-year lows. The weather is warming up as spring progresses, which should help rebuild inventories.
• The EU continues to work towards a plan to eliminate its use of Russian fossil fuels due to be released on May 6. It is considering prohibiting spot buying of Russian gas; however they are only a small share of the total. The ban would also include oil and uranium. EU LNG imports from Russia rose to a record high in 2024, according to Bloomberg.
• US gas fell 0.4% on Tuesday to $3.17 but is down over 25% this month as forecasts for warmer weather weigh on prices. It rose to $3.24 before falling to $3.10. Inventories are being built though as expectations of increased cooling demand grow, which may support prices. June becomes the most active contract next week.