10 June 2015
Rates & FX Market Update
DM Govies Resumed Bond Sell-off;
ThaiGBs Expected to be Supported by Lower Supply in June
Highlights
¨
¨ The
UST curve extended its bear-steepening momentum overnight amid thinner
liquidity, where short-end yields were pressured higher following the 3y
auction; yield cut-off at 1.125%, highest since April-15’s 1.280% with BTC
of 3.33x (May: 3.34x). Indirect bidders remained strong at 50.7% of
issuance share, compared with 52.7% in May which suggests continued demand from
offshore funds. Similar bearish trends were seen in EGBs, where long-end yields
led the overnight underperformance; the 30y Bund rose 9bps to 1.653% at closing
as investors continued to stay cautious ahead of the incoming Bund supply,
totaling EUR58bn over the week, given the recent bout of EGB sell-off;
expect volatility to persist in Core EGBs. Meanwhile, Greece submitted fresh
proposals in efforts to release bailout funds by its European creditors ahead
of the 30-June deadline, where we continue to see general perception of low
contagion risks and political implications in a default scenario.
¨
In Asia, ThaiGBs yields fell overnight, ahead of
BoT’s meeting where we expect no change to interest rates. Additionaly, we
expect any upward yield pressures stemming from fresh Fed hike speculations to
be contained by a lighter June bond supply calendar. This aside, MGS
broadly rallied, as markets continued to bargain-hunt following the sharp spike
in yields following the 10y auction. Foreign demand for MGS/GII slowed in May
at +MYR0.71bn, compared with April’s +USD10.98bn, volumes substantially
lower for short-dated bills against declining supply in a bid for BNM to
improve liquidity conditions.
¨
The IDR remained under pressure on stronger US
data releases such as jobs and manufacturing data, while global funds continue
to unwind positions in Indonesian govies. We expect the USDIDR to trade
firmly above its 13,300 key resistance level.
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