Reflation Trade Pressures Bonds

Spillover from Friday trade and incrementally positive news flow surrounding the Pfizer COVID vaccine helped weigh on the Treasury complex which fed through to fixed income in Asia.

• INDIA: Bonds under pressure in India with equity markets in the region rising alongside oil and metals, also some lingering negativity after weak auctions in the last trading session of last week. Markets look ahead to RBI minutes for clues on options around bond market support.
• SOUTH KOREA: Bond came under pressure from the open, 10-year future has hit contract lows today. South Korean finance minister Hong Nam-ki said that South Korea aims to submit extra budget to parliament next week, the size of the package will be decided by Feb 28. A robust auction saw the contract come off its lows, 5-year fungible issue yielded 1.385% and was covered 3.1x, a 4.5bps yield concession from the January auction and slightly stronger coverage.
• CHINA: The PBOC drained a net CNY 40bn of liquidity from the system after conducting a CNY 10bn injection on Saturday and keeping LPR rates on hold. The operation brings liquidity drain since the return from LNY to CNY 270bn. Markets seem fairly comfortable with the combination of liquidity drain and forward guidance from the PBOC. The overnight repo rate has returned to levels broadly in-line with normal, last at 1.4692%, the 7-day repo rate last at 2.238%.
• INDONESIA: Yields are higher across the curve, some bear flattening seen. Indonesia released the details of its omnibus investment bill, the legislation includes cuts to taxes on earnings from debt securities by non-resident taxpayers, general simplification of business permits as well as new permit requirements for palm oil plantations. Meanwhile, Indonesian Econ Min Hartarto announced that movement restrictions in Java and Bali will be extended through Mar 8.