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PBOC Drains For Second Day; Indian Auctions Eyed

ASIA RATES
  • INDIA: Yields higher in early trade, bonds under pressure due to some auction concession and disappointment that the RBI did not announce any purchase operations for next week. Markets await the results of an INR 320bn bond sale later in the session. There is a chance that the sale could be left to primary dealers; last time out the auction of the 5.63% 2026 bond had INR 28bn devolved to primary dealers, while last week's sale saw the RBI devolve the whole INR 140bn 5.85% 2030 bond sale on primary dealers. Meanwhile the RBI did announce plans to hold an INR 2tn 14-day reverse repo operation today.
  • SOUTH KOREA: Futures are higher but off best levels, risk sentiment is mixed in Asia and South Korean equity markets are struggling to make gains. There is some concern over elevated coronavirus figures, with loosening of lockdown measures facing further delays. Markets have looked through inflation figures which were above the BoK's target again. The pace of gains in consumer prices did slow though which supports comments made by the Central Bank that inflation would overshoot in the short term and then pull back with the Bank now forecasting 1.8% for the year.
  • CHINA: The PBOC drained CNY 20bn of liquidity from the system via OMOs again today, the second day in a row. The central bank has now removed CNY 40bn of the CNY 100bn injection in the five days up to month-end. The PBOC has maintained the refrain that open market transactions are aimed at keeping the country's liquidity "adequate at a reasonable level." After jumping earlier this week repo rates have declined to normal levels; overnight repo rate down 4.5bps at 1.605%, 7-day repo rate down 14bps to 1.86% after touching 3.60% earlier this week. Futures in China are higher with equity markets coming under heavy selling pressure.
  • INDONESIA: Yields higher across the curve, some bear flattening seen. Indonesia unveiled a slew of new restrictions for Java and Bali, which will take effect for two weeks starting tomorrow (i.e. Jul 3 - 20). All non-essential workers have been told to work from home, while most essential sectors will operate at 50% capacity. The reopening of Bali to foreign visitors will be delayed, while all large social gathering will be banned. Elsewhere, Health Min Sadikin pledged to expand the vaccination campaign and increase hospital bed capacity, with bed occupancy rate topping 90% in Jakarta, Banten or West Java.
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