25 June 2015
Rates & FX Market Update
Softer Demand at 5y UST Auction in
Anticipation for Fed’s First; PBoC Lifts its 75% LDR Limit to Regulate Bank
Liquidity
Highlights
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¨ USTs posted modest gains yesterday, despite a better
revision to US 1Q15 GDP estimates. Meanwhile, demand at the new 5y UST auction
was softer than average, garnering a BTC of 2.39x (past 10 auction average:
2.54x) despite a higher yield cut-off at 1.71% (previously: 1.56%), suggesting
investors increasingly pricing in the better data and a looming Fed first hike
following hawkish remarks by a number of Fed members. In Europe, investors
remained fixated on ongoing Greek negotiations with its creditors, where we may
see a possible deal announced later today; P.EGB yields were little changed
while the EUR climbed above 1.12/USD. Elsewhere, BoJ minutes remained a
non-mover on JGBs, with most members optimistic towards achieving its 2% CPI by
1H16.
¨ Over
in Asia, PBoC lifted its 75% Loan to Deposit Ratio (LDR) limit, proposing
for the gauge to be used as a reference rather than a mandatory regulation.
We expect the new regulation to moderately support loan activities,
particularly for smaller banks, but unlikely to be a game-changer; yields on
CGBs remained stable. Elsewhere, small gains were recorded along the ThaiGB
curve as BoT minutes revealed that while the central bank expects CPI to
pick up in 2H15, scope for monetary easing remains a viable tool for BoT
if needed. Lastly, South Korean consumer confidence continued to dip for
the month of June, as concerns over the impact of MERs on the domestic economy
remains elevated. Meanwhile, USDKRW inched higher to 1108.5 despite the
softer USD, fueled by expectations for further BoK easing from the fiscal
and monetary front.
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USDJPY continued to consolidate within its
122-125 range ahead of May’s CPI print. The subdued CPI print is expected to be
within consensus expectations and likely to be a non-event. We expect the
USD to be the main driver for the pair over the near-term, as encouraging US
data releases continue to drive the pair towards its upper bound of 125.
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