Asia open: Rebound or ruse? Asia rallies as the US–China fuse burns shorter

Asian equities are rising off the mat after one of the nastiest beatdowns in modern memory — the kind of flush that usually leaves a crater. Yesterday’s wreckage was historic, but today? The bounce has real teeth. Wall Street closed with buyers leaning in, not just short-covering the tape. That demand quickly skewed into the bell and helped sentiment, and now Asia was riding that momentum like it knows something.

Olive branches are suddenly everywhere. Talk of negotiations is back — not official, but loud enough to move markets. Japan’s taking the lead, sprinting out front, hoping that the U.S. and its true allies can hammer out a separate lane before the China-U.S. death match spirals further. The bid is real, and rotation is firm — this isn’t your garden-variety relief rally.

But zoom in on China, and it’s still a warzone. Beijing remains ground zero in Trump’s tariff assault, and they’re now fighting with a dulled blade. The macro backdrop is soft — weak growth, wobbly sentiment, and a shrinking list of retaliation options. It’s almost like the U.S. is daring them to devalue the yuan, baiting them into a move that would light a fire under capital flight and rattle the entire EM and BRICS complex.

The PBOC is in triage mode and not exactly twiddling its thumbs either. The PBOC has announced it will provide re-lending support “when needed.” Translation: China’s central bank is now standing directly behind the sovereign wealth fund — which, by the way, has been actively buying stocks on-screen. This isn’t moral support — it’s a full-on monetary airlift.

Huijin has become the tip of the spear for state-backed market stabilization. With the PBOC pledging to backstop its firepower, Beijing is sending a clear message: they’re not going to let this market unravel without a fight. Call it stealth QE with Chinese characteristics — or just call it what it is: a central bank stepping in to prop up the tape.

It’s a messy bond tape out here — no question. Early on, breakevens had the wheel. And if tariffs were supposed to be inflationary, someone better tell the TIPS desks, because breakevens got smoked. That’s not noise — that’s the market pricing in macro malaise front and center. Disinflation, not price heat, was running the show.

That bought Treasuries a bid. But it didn’t stick. The real story started sneaking in — the quiet but growing de-rating of U.S. paper, right ahead of a chunky $119B supply dump. You could feel the air get thinner. Then came the usual sovereign wealth fund whisper game. Doesn’t matter if it’s true — that kind of smoke moves markets. And suddenly, the bid-to-cover ratio became the most-watched stat on the street.

Look, the fiscal/inflation re-leverage wave was always coming — but this? This was warp speed. The move in 10s wasn’t your garden-variety drift — it was 30bp in a straight line. That’s not a grind, that’s a volatility shock. Volmageddon rates edition. A lot of desks were light on hedges, slow on the uptake, and now scrambling to reprice risk in real time.

In Asia FX, the entire narrative hinges on one big question: how does China respond to Trump’s tariff barrage — and does that response include a deliberate devaluation of the yuan?

Until now, Beijing’s playbook has been to keep USD/CNY relatively steady, even with dollar vol running hot. But cracks are now showing. Over the past few sessions, the yuan has started to leak weaker — almost as if the PBoC is quietly stepping back. It’s not a fire sale, but it is a directional signal. State banks are propping up equities, not the currency — and crucially, they're not selling dollars to do it. That’s telling.

The result? The yuan is now trading above 7.35, and we’re less than 500 pips away from our base case deval scenario playing out.

So what’s next? If Beijing really wants to flex, they might not touch the FX tape directly. Instead, they could unload some Treasuries. And with $119 billion in 3s, 10s, and 30s hitting the auction block this week, any soft bid-to-cover — especially in the belly or long-end — will scream red flag. One sloppy print and the dollar takes a hit.

Bottom line: everyone’s watching the yuan. But the real fireworks might show up in the UST bid stack.