SINGAPORE- US Treasuries rallied in Asia trade on Thursday as signs of cooling inflation and the US economy slowing down were seen as opening the door to a couple of interest rate cuts this year.
Two-year yields fell three basis points (bps) to touch a six-week low of 4.705 percent . Ten-year yields which dropped nine bps on Wednesday, fell a further four bps to 4.313 percent , also a six-week low. Yields fall when bond prices rise.
On Wednesday US core inflation slowed to 3.6 percent in April. That was in line with market expectations but taken by traders as an encouraging signal after a few months of stickiness.
Flat retail sales in April, against expectations for a 0.4 percent rise, also contributed to the sense of a slowing economy.
“It’s not a recession, but it’s a much awaited and much needed slowing in consumption,” said Naka Matsuzawa, chief macro strategist at Nomura in Tokyo.
“So that’s definitely the prerequisite for any significant slowdown in inflation toward 2 percent .”
Fed funds futures imply 52 bps of cuts priced in this year, up from 45 basis points on Tuesday, with the first 25 bp cut likely in September.
Thirty-year yields fell four bps to a six-week low of 4.475 percent . Separately, foreign holdings of US Treasuries surged to a record high in March, data from the Treasury Department showed, rising for a sixth straight month.
South Korea, meanwhile, is allowing foreign banks to get quotes for dollar-won transactions from a wider pool of banks in the onshore market as part of efforts to improve market access for foreign investors.
The first case of third-party foreign exchange transaction of won was carried out between Kookmin Bank’s Singapore branch and Deutsche Bank’s London branch, in a swap contract of about 30 billion won ($22.19 million) on May 10, South Korea’s foreign exchange authorities said on Thursday. The transaction was settled on May 14.
South Korea has allowed foreign exchange trading with third parties since last year.
The change allows foreigners to choose trading partners that provide the best offer and means they are no longer restricted to making foreign exchange transactions only at banks where they hold accounts.
