CIMB Daily Fixed Income Commentary - 18 Jun 2015

Market Roundup

• The Federal Reserve left its Fed Funds Rate unchanged overnight at its FOMC meeting and policymakers provided little clues as to when the rate will be hiked. Policymakers’ language post meeting was not revealing but deemed that recent economic activity had expanded ‘moderately’. However, we think that Fed’s aim to manage expectation of a lower-for-longer interest rates whilst ensuring markets price in a measured tightening expectation was going according to plan. Markets still think the Fed is on course for rate tightening soon (we think before end-2015) but has not fully priced in this expectation into (all sorts of) market prices. Overnight, Wall Street stocks strengthened whilst US Treasuries was steady with the 10T at 2.32% (+1bp).
• The US dollar against Euro is hovering near 1.1361 this morning, firmer against 1.1253 overnight and 1.1251 on Wednesday, Meanwhile, USD/JPY is around 123.52 this morning versus 123.91 overnight and 123.54 Wednesday. We think the strong dollar theme remains in play though the currency was sluggish overnight on the heels of the FOMC decision and outlook.
• The Malaysian sovereign yield curve flattened as action was dominated by positive buying flows on the front end and bellies of the curve. Meantime, trading volume surged from RM1.3 billion the day before to RM4.4 billion, fuelled by announcement of the 7-year MGS reopening auction.
• THB denominated government bonds closed mixed, while players showed improved bidding interest along the bellies, aided by the offshore net buying interest (about Bt1.5 billion) on Wednesday.
• Indonesian government bonds were traded up in line with UST movement on Wednesday. Some buying actions by banks were seen along the 5-year and 10-year benchmark bonds, while 5x10 spread narrowed to less than 10bps, ahead of FOMC and BI rate decision. Market expect BI rate to be unchanged at 7.50%. Trading volume eased to IDR 8.4 trillion.
• Asian credits recovered slightly on the back of gains in overnight UST, alongside some short-covering activities. China Shanshui Cement was in the limelight, as its tranches maturing 2016 and 2020 dropped by 1.09pt and 5.53pts to 98.72pts and 83.58pts respectively, after the credit rating cut from B+ to CCC by S&P.