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South Korea Short End Bid After CPI Target Overshoot

ASIA RATES
  • INDIA: Yields lower in early trade, bonds are expected to find support today, tracking a move in US tsys and as oil continues its decline. Oil is under pressure after Russian oil min Novak said the country could raise oil output above the OPEC+. The OPEC+ group agreed to go ahead with the planned 400k bpd increase scheduled for October, wagering that the spread of the delta variant won't derail demand.
  • SOUTH KOREA: Futures are mixed, 10-Year future slightly higher tracking a move in US tsys overnight, while the 3-Year has come under pressure after an overshoot in August CPI inflation which has led to increased speculation of a steeper rate hike path for the BoK. CPI rose faster than expected, the Y/Y August print coming in at 2.6%, in line with the July figure but faster than the 2.4% expected. The core Y/Y print came in at 1.8% against 1.6% expected and 1.7% last time out. The annual reading puts inflation over the BoK's 2% target for the fifth straight month, the BoK expected 2.1% inflation for 2021.
  • CHINA: The PBOC drained another CNY 40bn of liquidity via OMO's today, totaling a withdrawal of CNY 80bn in September so far of the CNY 200bn added heading into August month-end. Overnight repo rate up 43bps after plunging into yesterday's close, at 2.075% the rate is below highs of over 2.40% seen in August. The overnight and the 7-day repo rates remain inverted with the latter hovering around 2.0243%. Futures are lower, the 10-Year dropping after a 41 tick rise in the wake of weak PMI data yesterday. At these levels the 10-Year is still just shy of its contract high with renewed speculation of another RRR cut.
  • INDONESIA: Yields lower, curve sees some bear flattening. Indonesia has reached a milestone of administering 100mn doses of Covid-19 vaccines, albeit this means that just 23% of the country's population have received at least one dose so far. Elsewhere Bank Indonesia issued a macroprudential inclusive financing rule which is designed to boost loan disbursement toward micro and SME's. As a reminder data yesterday showed CPI rose broadly inline with estimates at 1.59% in August, up from 1.52% in July.
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