PBOC-Backed Paper On The Need For Policy Change Weighs

Asian Government Bonds cheapen led by China Government Bonds (CHGBs)

• CHGBs are dealing 1-2bps cheaper across benchmarks after BBG cites a PBOC-backed paper, which argued that China’s policies needed to shift from increasing credit supply. The US-CH 2-year yield differential remains around its cycle high.
• By contrast, the South Korean Sovereign Bond curve is richer, led by the long-end, despite mixed data. May headline consumer sentiment dipped, but inflation expectations ticked higher (see this link).
• Also, South Korea's first 20 days of trade data for May showed slower momentum versus the equivalent April outcome. Headline exports were +1.5% y/y, versus 11.1% prior, while imports fell to -9.8% y/y from +6.1% prior. The trade deficit was $304mn.
• The detail painted a more upbeat picture though. Average daily exports for the first 20 days were up 17.7% y/y. This compares with +11.1% for the first 20 days of April. In May the Labor Day holiday, as well as other holidays, may have had an impact.