INSIDE CHINA: Bonds Fall; Goldman Sees Further Loosening

Yield on 3.64% govt bond due April 2025 rises 7 bps to 3.680%; country said to mull doubling 1t yuan local-debt swap program.

• Official manufacturing PMI rises to 50.2 in May, highest in six months; median estimate was 50.3; HSBC final factory PMI at 49.2 in May, matching median estimate
• PMI sub-indexes show external, domestic demand pickup
• SocGen sees supply risk if China doubles local debt-swap program
• Long-end yields to move lower in coming months, says ANZ
• 7-day repo rate little changed at 1.9308%
• 1-yr IRS down 5 bps to 2.3800%; 5-yr contracts drop 1 bp to 2.8800%
• Today’s data showed early signs of a recovery in the economy amid continued policy loosening, Goldman Sachs writes in note; believe these are not enough to change the overall policy direction and see government likely to release further loosening initiatives in the coming months until there are consistent signs of a significant growth recovery
• Yuan falls 0.02% at 6.1995 per dollar, offshore yuan down 0.03% at 6.2041 per dollar; PBOC sets reference rate 0.02% lower at 6.1207
• 1-mo. implied volatility rises 1 bp to 1.0925%; past yr’s avg is 1.8792%
• 1-mo. forwards fall 0.1% to 6.1308 per dollar