Halister News

(Bloomberg) -- Fed Chair Yellen may repeat recent comments from Dudley and Fischer in her Jackson Hole speech, by hinting the market shouldn’t fully price out Fed moves even with risks from Brexit and U.S. elections, Kheng Siang Ng, Asia Pacific head of fixed income State Street Global Advisors, says in interview on Aug. 23.

• Fed seen hiking by year-end or next year, which would create unnecessary volatility and shock to markets if move was under-priced
• U.S. economy still subdued but Fed may still want to hike simply because staying close to zero bound for so long could create excessive risk-taking behavior
  • Fed isn’t hiking rates to ensure economy doesn’t face runaway inflation
• “People could get used to money being free and rates being at zero, so they would build up a leverage for the future,” Ng says
• Moderate profit-taking may be seen in dollar/Asia on any hawkish comments from Yellen but unlikely to be severe
  • USD/Asia may even revisit recent bottoms given good fundamentals
• Any significant rally in Asian currencies would not be welcomed by authorities especially in Korea, Japan and Thailand, Ng said
• State Street ABF Pan Asia Bond Index Fund’s assets of $4.1b are allocated into local currency sovereign and quasi- sovereign bonds in onshore China (21%), Korea (17%), Hong Kong (15%), Singapore (15%), Malaysia (11%), Thailand (9%), Indonesia (7%), Philippines (5%)

(Bloomberg) -- Executive Yuan at weekly meeting today approves medium- to long-term private and public-investment boosting proposals submitted by National Development Council, cabinet spokesman Tung Chen-Yuan says by phone.

• Govt-linked cos. may invest NT$340b in infrastructure projects and innovation industries over next several years: NDC Deputy Minister Kung Ming-hsin says in cabinet briefing
• Cabinet also approves anti-money laundering rule regulations to comply with international practice: Ministry of Justice statement http://tinyurl.com/jpfskxx

(Bloomberg) -- China’s bond-market correction has only begun, and funding costs will rise further as PBOC is determined to gradually deleverage debt markets, Huachuang Securities analyst Qu Qin writes in note today.

• Resuming 14-day reverse repos indicates PBOC wants to raise funding costs by adjusting structure of OMO injections
• NOTE: PBOC has told banks it could sell reverse repos longer than 14 days if necessary, Markets News reports today
• The correction in bonds should accelerate as institutional investors halt investments in primary market and wait for yields to rebound, says Huachuang
• In mid-term, inflation pressure should drive bonds down further; sees CPI at 1.8% in August, the same as July, and rebounding thereafter to “2% area” in 4Q
  • PPI deflation is likely to moderate to -1% in August on the back of rising metal, coal and oil prices, with the gauge returning to inflation in October
• Yield on 2.9% govt bond maturing May 2026 is up 1 bp to 2.770%, while yield of Sept. 2035 note gains 1 bp to 3.102%

(Bloomberg) -- Currencies in Asia-Pacific are a touch firmer in muted trading as investors remain sidelined ahead of Fed Chair Yellen’s outlook on U.S. monetary policy at Jackson Hole tomorrow.

• It’s hard for anyone to take significant positions as everyone is waiting for Yellen’s speech, Koji Fukaya, Tokyo- based CEO of FPG Securities, says
  • There’s growing speculation she may say something that may encourage investors to price more in rate hikes as market underestimates the probability
• Dollar index falls and U.S. 10-year yield steady at 1.556%
  • Probability of Fed’s rate hike in Sept. and Dec. is unchanged at 28% and 54% resp. on Aug. 24
• Chinese yuan firms after PBOC raises yuan fixing by 0.3% to 6.6602 from 6.6420 yesterday
  • 7-day repo rate declines after PBOC says there is no change to its monetary policy
  • China will properly use policy tools including differentiated reserve requirement ratio, PBOC Deputy Governor Chen says
  • PBOC sells 80b yuan of 14-Day reverse repo at 2.4% and 140b yuan of 7-day reverse repo at 2.25%
  • PBOC’s resumption of 14-day reverse repo sales doesn’t signal monetary policy is tightening, and probably won’t impact bond yields, according to Haitong Securities
  • PBOC met with banks on liquidity management; says current repos overly focused on overnight maturity and central bank is trying to add long-term money to mkt: MNI
  • Chinese economy will expand 6.5% in 3Q, according to latest results of a Bloomberg News survey of 56 economists conducted from Aug. 19 to Aug. 24
• Yen sticks in tight range ahead of Yellen tomorrow
  • USD/JPY’s MACD crosses upwardly above signal for the first time since July 11, rising toward zero; FX pair climbed 7.2% to reach a six-week high on July 21 after MACD rose above signal on July 11
  • While tapering of asset purchases would initially be negative for USD/JPY, its medium-term path would then be determined more by FOMC than BOJ, according to CA-CIB
  • Japanese investors bought a net 575.8b yen of overseas equities and bonds during seven days through Aug. 19, least in three weeks, according to finance ministry data
  • Mobius says helicopter money will be Japan’s next big experiment
• Aussie rises while Finance Minister Morrison warns on economy’s ‘uncommon predicament’
• Kiwi gains on macro demand, funds buying-the-break of Tuesday’s 0.7344 high, an Asia-based trader says
• New RBI governor Patel will face his first major test next month as an estimated $26b deposits raised from non-resident Indians in 2013 start to fall due
• EM Asia currencies rise with South Korea won leading gains
  • South Korea will manage household debt from “jeonse” rental and credit loans, and encourage borrowers to take out amortized loans, Finance Minister Yoo says
  • South Korea says FX swap isn’t on draft agenda of meeting with Japan
• Peso rises 0.1% to 46.48 per USD
  • Finance chief says PHP at 46-47 is what he prefers
  • June trade balance widened to -$2.1b compared to est. - $2.0b, prev. -$2.02b while imports accelerated 15.4% y/y vs est. of 13.8% y/y
• Indonesian rupiah is the only loser among EM Asian space
  • BI sees signs of falling consumer prices in Aug. and room to continue easing, Senior Deputy Governor Mirza Adityaswara says

(Bloomberg) -- Here’s a roundup of Indian co. debt-rating changes.

• To get this story sent to your inbox real-time, run NI INRATINGS , click on Display & Edit, then Set Alert Delivery

DOWNGRADES

• Dhanya TMT
  • Long-term loan facilities cut to D from BB- at Crisil
  • Cites instances of delay by the group in servicing its debt obligations

UPGRADES

• Grameen Koota Financial
  • LT bank facilities raised to A from A- at ICRA; NCDs also revised to A from A-
  • Cites comfortable capitalization profile

• Indian Farmers Fertilisers
  • LT loan facilities raised to AA from AA- at Crisil
  • Expects strengthening of risk profile due to improving energy consumption in its urea business

• Tirth Agro
  • LT loan facilities raised to BBB+ from BBB at Crisil
  • Expects company to improve its product mix, increase its geographical footprints

(Bloomberg) -- Urjit Patel, who takes over as RBI governor on Sept. 4, will face his first major test next month as an estimated $26b deposits raised from non-resident Indians in 2013 start to fall due.

• RBI estimates about $20b of these deposits will flow out at maturity
• While the central bank has pro-actively raised dollars to meet these obligations, analysts point that mismatches may lead to periodic dollar or rupee shortages
• Patel is no stranger to the event risk, having worked closely with Rajan and was deputy governor for monetary policy through the latter’s tenure

• Background
  • RBI raised funds from non-residents in 2013 to support the plunging rupee as global risk assets tumbled after Bernanke signaled the Fed may begin tapering QE
  • $25b of non-resident dollar deposits will mature between Sept-Dec with 81% concentrated in Oct-Nov, according to Yes Bank estimates in a note dated Aug. 23
  • RBI offered concessional swaps to banks in 2013 to raise the deposits on its behalf; it will now need to repay dollars to these banks which will be returned to the non-residents
  • RBI has bought dollars in forwards market to prepare for this; between Nov. 2013 and June 2016, it reduced its net forward USD position to -$7.4b from -$32.5b

• Potential Pressure Points

• Dollar Liquidity Shortage
  • RBI may not get dollars in time from one set of banks to pay the others due to mismatch of maturity profiles
  • Dollar shortages may also occur as exporters typically deliver part of their contracts and rollover the rest
  • HSBC estimates that of the $24b due from FX traders in 2016, RBI has taken delivery of about $5b, according to Aug. 17 note
  • RBI has more-than-sufficient FX resources to cover any short-term liquidity needs resulting from maturing FX swaps, Nomura wrote in a note dated Aug. 21
  • NOTE: India’s FX reserves reached a record $366b on Aug. 12

• Rupee Liquidity Shortage
  • RBI’s supply of forex to banks may suck rupee liquidity from the banking system
  • Yes Bank says RBI can let the rupee liquidity system sit in surplus before the maturities fall due, and accelerate OMO purchases during Oct-Nov

• Decline in Bank Deposit Growth
  • Foreign currency non-resident account outflows worth 1.6t rupees is likely to result in a cumulative decline of 1.8% in bank deposit growth: Yes Bank
  • Bond holding rules for liquidity coverage ratio requirement have been relaxed, providing some leeway for banks, HSBC says
  • In July, RBI raised the ratio of deposits that banks are allowed to use for liquidity coverage ratio requirement to 11% from 10%

• Global Risk Event
  • Residual risks remain, such as a strong global risk-off scenario coinciding with the maturities, resulting in possible dollar shortage, Badrinivas Nallan Chakravarthy, head of local markets treasury at Citigroup said in an interview
  • Even so, impact is likely to be in the forwards market rather than spot; RBI has contained the risks very well: Citi

• Repeat of India Millennium Deposit Scheme?
  • A similar program called India Millennium Deposits led to an estimated $7b outflows in Dec. 2005; even so, rupee rose 2% vs USD that month
  • While the current maturity is 3.6 times that of IMD, the ratio to RBI’s foreign currency assets is likely around 7% vs IMD at 5.1%: Yes Bank