Mixed Day As Reflation Trade Gives Pause For Thought

The reflation trade extended on Wednesday, which spilled over to Asia fixed income and kept downward pressure on bonds. Some local dynamics in play with China returning from LNY and South Korea contemplating an uptick in virus cases.

• CHINA: Upon the return from a five day LNY break the PBOC conducted a net drain of CNY 260bn, injecting CNY 20bn into the system, and matching CNY 200bn of MLF maturities. The overnight repo rate has risen 40bps in response to the drain, especially considering the PBOC refrained from mass liquidity injections heading into LNY. Still, at 2.23% the overnight repo rate is some way off highs seen at the end of January on fears of a liquidity crunch. China's bond futures sank to a 21-month low, playing catch up with global bonds, even as equity markets retreated.
• INDIA: Cash curve cheapened ahead of INR 310bn of supply today, 10-year yield above 6.00% - the RBI rejected all bids at auction last week due to yields being too high. Some chatter supply could be pushed to second half of the year to help absorption.
• SOUTH KOREA: Bond futures in South Korea are higher, an uptick on coronavirus cases post-LNY has sparked risk aversion, South Korea reported 621 new coronavirus cases over the last 24 hours. Demand in the cash curve was impacted by a record ESG issuance for IBK.
• INDONESIA: Yields mostly higher across the curve, bear steepening seen ahead of the BI announcement later where a 25bps cut is expected. Some buying seen in the benchmark 10-year after a sell off saw yields rise around 20bps yesterday.