Curve Twist Steepens, Soft China Data & China Liquidity Focus Noted

Some light firming crept into the Tsy space after a lower-than-expected MLF liquidity injection from the PBoC, although the Bank was quick to divulge information surrounding PSL disbursement, pointing to larger than maturing fund injections on net across its facilities, even as the latest round of MLF operations resulted in a net drain of liquidity in isolation. This tweak points to increased focus on support for the property sector, which is in line with the policy moves that we have seen in recent weeks. Also note that there was a larger than expected short-term liquidity injection via the Bank’s 7-day reverse repo operations.

• Elsewhere, the latest round of Chinese economic activity data was disappointing, with misses in both retail sales and industrial production.
• Cash Tsys now sit 1bp richer to 1bp cheaper across the curve, with narrow ranges in play, and light twist steepening apparent, with a pivot observed around 5s. TYZ2 sticks to a narrow 0-05 range, last +0-00+ at 112-04+, after backing off from best levels on a failed test of Monday’s late high.