Reflation Stumbles

A mixed session with a higher open generally reversed amid a recovery in sentiment as the reflation trade stumbles, local dynamics see buying in India and selling in Indonesia.

• CHINA: The PBOC injected CNY 10bn of liquidity via 7-day reverse repos today, the overnight repo rate has increased 46bps, last 1.9745%, but the move looks tame when compared to the 3.55% seen at the end of January, the 7-day repo rate is steady. A piece in China's Economic Information Daily could add fuel to the fire in terms of tightening speculation, there was a frontpage commentary that predicted China's economy will grow 8% in 2021 after posting 2.3% growth in 2020. The piece also stated steady improvement in China's economic fundamentals is creating conditions for the country to normalize its monetary policy. China brings supply to market tomorrow which saw cash yields rise, futures opened higher but dropped as equities gathered pace.
• SOUTH KOREA: Futures in South Korea are flat, 10-year at 128.02, having given back earlier gains as equity markets picked up steam. 10-year future bounced off support at 127.96, matching yesterdays low. 20-year auction was fairly weak, cover dropping despite a healthy yield concession. BoK Gov Lee said the bank would support the bond market, but only make direct purchases as a last resort.
• INDIA: Yields are lower across the curve in India, retracing a sharp move higher yesterday – 10-year yield is still some 15bps higher than the start of trade on Friday. There have been calls for the RBI to disincentivise shorting bonds, Soumya Kanti Ghosh of State Bank of India wrote in a client note that the RBI should increase both implicit and explicit costs of shorting through asking sellers to cover the sale in 30 days instead of the current 90 days and by introducing negative interest rates.
• INDONESIA: Yields higher across the curve, adding to sharp gains yesterday. Yields off highs following a successful sukuk auction, the IDR 12tn issue saw bids of IDR 24.2tn. Markets await the release of the budget later today.