CNY Rates extrapolating April’s data softness; IndoGB yields dip post auction
Watching China data, Lower IDR rates
Group Research - Econs, Duncan Tan30 May 2023
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CNY Rates - We will be getting May data over the next couple of weeks, starting with NBS PMI readings tomorrow. Consensus is expecting another contraction print for manufacturing PMI of 49.5 vs April's 49.2, and expecting non-manufacturing PMI to moderate to 55.2 from April's 56.4. However, surveys by China Beige Book show some signs of a pick-up in manufacturing. Another gauge, China emerging industries PMI, also suggest an uptick.

In recent weeks, 5Y IRS and 10Y CGB rates have fallen back down to levels just prior to reopening, suggesting that rates markets are bearish on the growth outlook. Therefore, even if May data were to disappoint relative to expectations, IRS/CGB rates may not fall further as pricing is already bearish. Beside downside room being capped, we think that upside room to rates are also limited. In the potential scenario where policymakers announce significant fiscal stimulus or policy support measures to support growth and sentiments, rates could certainly rebound. But we think that the data may not be sufficiently weak yet for policymakers to feel that they need to act. On liquidity, conditions appear to be comfortable (7D repo fixings are trending lower), largely due to weak credit demand.

IDR Rates - IndoGB yields dipped 2-4bps lower post yesterday's conventional auction. Total incoming bids amounted to IDR58.4tn and IDR15.0tn was issued, vs target IDR17.0tn. Demand for FR0097 was quite strong, with the yield cut-off (6.70%) coming in low relative to market bid-ask. We note that, in recent auctions, issuance size has consistently been below-target despite large incoming bids. This suggests that immediate financing requirements may be low, given that YTD budget is in surplus and government cash balances are high.

Duncan Tan

Rates Strategist - Asia
[email protected]

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