Asia Rates: Bounce in China swap rates; 6.30-6.40% for SRBI yields
China’s 5Y IRS higher, SRBI auction tomorrow.
Group Research - Econs, Duncan Tan19 Sep 2023
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CNY Rates - 5Y IRS have bounced to just under 2.50%, from the low of 2.30% on 21 August. Growth sentiments have improved in light of recent policy support measures on several fronts (liquidity, fiscal, housing, capital markets, FX) and some aspects of August data coming in better than expected (manufacturing PMI, trade, credit growth). Faster bond issuances have also to some extent put upward pressures on rates, as guidance has been given to local governments to fully utilize their special bond quotas by end of this month. Beyond September, for 5Y IRS to break above 2.50-2.55%, we would need to see greater momentum of policy support and more apparent signs of improvement in the property sector (housing sales, developer funding). Liquidity appears to be tightening ahead of upcoming quarter-end and golden week holiday, as seen in high R007/DR007 fixings.

IDR Rates - The second SRBI auction is scheduled for tomorrow. At the very first auction that was conducted on last Friday, total bids amounted to almost IDR30tn, which was much larger than the bid sizes at the last couple of Reverse Repo (SBN) ops in August. This was likely due to pent-up demand to place surplus liquidity at the 6/9/12M tenors because there was a one-month gap between the last 6/9/12M Reverse Repo (SBN) ops and the first SRBI auction. Banks could also had wanted to get hold of more SRBI inventory to meet end-client interest. Weighted-average yields awarded at the first SRBI auction was in a 6.30-6.40% range, almost identical to the awarded rates at the last few Reverse Repo (SBN) ops. Considering the strong incoming bids at last Friday's SRBI auction, BI could had easily awarded a smaller size at lower weighted-average yields. We infer that 6.30-6.40% should be seen as the target yield range for now, with some upside room to 6.45% we see short-term pressures on IDR.

Duncan Tan

Rates Strategist - Asia
[email protected]

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