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CNY Rates - PBOC conducted CNY779bn of 1Y MLF operations (at unchanged rate of 2.75%), representing a net liquidity injection of CNY79bn against CNY700bn of maturing. Injection of shorter-term liquidity is also being ramped up via CNY82bn of 7D and CNY74bn of 14D reverse repo operations. Despite the recent liquidity injections, liquidity could still tighten marginally and market funding rates could rise, due to heightened cash demand around lunar new year and tax payments. Inflows into China equities are generally staying buoyant on reopening theme, but there has been a rotation from H to A-shares - Net purchases via Northbound Stock Connect have recently been much stronger than purchases via Southbound Stock Connect (the reverse was true in Oct/Nov22). This rotation is certainly more conducive for further gains in CGB total returns for foreign investors. We think that current levels of 5Y IRS are overpriced for the current phase of reopening where macro data remains weak and the peak in infections could still be ahead of us. If 5Y IRS rises towards 3%, possibly driven by funding squeeze, we think the move should be faded.
IDR Rates - December trade surplus printed USD3.89bn, lower than November's USD5.16bn, due to a smaller non-O&G surplus. For today's conventional bond auction, indicative target has been set at IDR23tn, same with the previous auction on 3 Jan. Awarded bids could come in closer to target (higher than IDR19.2tn awarded at 3 Jan auction) to take advantage of yield declines over the past 2 weeks and likely stronger bids from foreign. 1/3/6M NDF points have turned negative, something which rarely happens. Foreign investors can now cheaply hedge out FX exposures on their IndoGB holdings. That said, they may prefer to leave FX exposure open considering that the IDR has been catching-up to broad USD weakness (after Nov/Dec's underperformance). In a lower US rates-lower US dollar environment, long IndoGB (unhedged) is typically the popular trade for Asia.
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