Wednesday, June 10, 2015

: RHBFIC Rates & FX Market Update - 10/06/15



10 June 2015


Rates & FX Market Update


DM Govies Resumed Bond Sell-off; ThaiGBs Expected to be Supported by Lower Supply in June

Highlights
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¨    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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