Fixed Income Daily Pulse, 22 May 2015

The day’s trade recap (from our trading desk):

·        It has been a rather quiet week thus far, with yields inching slightly lower on the MGS curve (from -1 to -3 bps) while yields was a tad higher on the GII curve (from +1 to +2 bps). Volumes traded across all MGS & GII benchmarks throughout the week have been very light; with average daily volumes of each benchmark less than RM100m. The spread of GII against MGS increased, with the 10-year widened between 12-14 bps while it was tighter on the back end of the curve between 5-7 bps. The new 20-year MGS auction was very well received with a bid-to-coverage ratio of 2.72x, as local real money buying the bond to extend duration as well as for yield pick-up. During the week, huge volumes was done on the short end bonds as well as the short term bills. This is due to offshore counterparties putting on carry trades on the cheap implied funding as well as local bank’s fulfilling their HQLA (high quality liquefiable assets) requirements to comply with Basel III. Liquidity for the short end bonds has dried up quite a bit due to these matters. The trading volume in the GG/AAA segment saw some increment today compared to the previous trading session. Notable trade is Prasarana Malaysia ‘03/24 and ‘03/27, where the yields declined 1 and 2 bps to 4.26% and 4.41% respectively, with a collective trading volume of RM40m. Elsewhere in the AA segment, Imtiaz Sukuk II ‘11/19 and ‘11/21 traded 2 and 1 bps lower to 4.43% and 4.51% respectively, with RM15m changed hands.    MGS Benchmark Issues MGS Closing Level (%) Chg (bp) Vol (RM m) 3-yr 3.340 -2.0 20 5-yr 3.570 0.0 52 7-yr 3.770 0.0 45 10-yr 3.870 0.0 30 15-yr 4.100 -1.0 10 20-yr 4.240 -1.0 25 30-yr 4.620 -4.0 10 IRS Closing Rates IRS Closing Yld (%) Chg (bp) 1-yr 3.645 0.5 3-yr 3.690 -1.5 5-yr 3.895 -0.5 7-yr 4.080 -1.5 10-yr 4.265 -1.3 Source: Bloomberg, AmBank

               

  

Local News:

·             Malaysia’s inflation rate rose 1.8% in April 2015, which is below the consensus. Prices of food and non-alcoholic beverages grew 3.1% y/y in April and utility costs increased by 2.3%. At the same time, transport costs dropped 4.8%. On a seasonally adjusted basis, the CPI for April increased by 0.9% as compared to March 2015.

·             The international reserves of Bank Negara Malaysia amounted to US$106.2 billion as at 15 May 2015. The reserves position is sufficient to finance 8.0 months of retained imports and is 1.1 times the short-term external debt.