RHB FIC Rates & FX Market Update - 30/3/15

30 March 2015

Rates & FX Market Update

10y UST Sticky At 2% Handle; Turn Mildly Bearish on GBP Heading Into May’s Elections; Indonesia Continues With Gas Price Hikes

Highlights

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¨    Modest UST gains following the weaker than expected 4Q GDP at 2.2%. Fed’s model continued to show a mild tightening bias in 2015 but Yellen steered cautiously at her speech on Friday, keeping all options on the table but stressed the perils of tightening too soon. We expect the 10y UST to remain sticky around the 2% handle ahead of strong jobs data expectations later this week. Meanwhile, investors continue to reposition ahead of the UK elections due 7 May, where 1m and 2m GBP volatility signaled higher GBP risks being priced in versus the last elections. We thus turn mildly bearish on GBP over the short term despite the overnight reprieve supported Carney’s dismissal of BoE Chief Economist remark to reiterate a rate hike irrespective of the 0% CPI print. In Europe, Fitch downgraded Greece by 2 notches to CCC on credit difficulties after Bundesbank opposed to further emergency funding for Greece amid the long drawn debt funding negotiations; contagion risks appears benign, offset by ECB’s PSPP for now.

¨    Sound support for the China led AIIB with 40 countries pledging participation, including European countries, challenging existing global institutions including the World Bank. In Singapore, soft demand for the 7y SGS (non-benchmark) reopening (BTC: 2.1x vs 2.4x prior) despite the higher cut-off yield at 2.55%, where only 44% of competitive bids were allotted. Investors sidelined on evolving easing speculations at MAS’s April; weaker PMI expectations may continue to weigh on the SGD. Singapore has also announced the issuance of Singapore Savings Bonds at the recent IMAS meeting, a principal guaranteed bond. In Indonesia, the government raised gas prices by IDR500 to IDR7,400 per litre on rising oil prices vs a weakening IDR. 

¨    USDTHB continued to trade sideways after a failed attempt to break its 200MA last week. The strong THB relative to regional peers continues to constrain its export sector, undermining growth expectations. The previous rate cut appeared insufficient for the economy to regain a stable footing where alongside the strong REER could support another BoT rate cut in 2015.

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