CIMB Daily Fixed Income Commentary - 03 Feb 2016

Market Roundup

• US Treasuries rallied with yields down 9-11bps, pulled down by safe haven demand as equities markets fell and Brent declined to $32.23 per barrel before rising to near $33.50 but found levels around $32.70 this morning. WTI found itself at $29.97 or down over 5%.
• There was no pertinent economic data except the New York ISM index which fell to a reading of 54.6 in the month of Jan from 62.0 in Dec. Meantime, Esther George the president of the KC Fed said "my view is that the committee should continue the gradual adjustment of moving rates higher", adding that January's market volatility was "not necessarily worrisome" after the Dec Fed hike. She also said Fed cannot respond to "every blip" in market movements. George is one of the more hawkish voting FOMC members.
• US Dollar weakened against the JPY to around 119.83 this morning from 120.78 the day before, as the Japanese currency was buoyed by safe haven demand despite the recent BoJ negative interest rate move. Meanwhile, EUR/USD is at 1.0924 this morning or slightly firmer from 1.0912 the day before.
• Malaysian government bonds ended weaker with net selling pressure on longer dated papers. Profit taking activity was seen on the 7-year MGS which rose 9bps to 3.69%. However, there was mild demand for shorter dated paper with the 5-year MGS down 1bp. Elsewhere, IRS rates rose 1-2bps with the 3M Klibor unchanged at 3.79%.
• Thai govvies moved sideways, as players were mostly awaiting signal from MPC meeting slated for 3 Feb. Market is generally expecting BoT to hold rate at 1.50%. Meantime, USD/THB edged higher by about 0.5% to 35.77 late Tuesday.
• We expect 5-year govvies to consolidate and leading to tighter 5x5 swap spread towards 20bps from entry at 25bps, exit 30bps.
• Indonesia government bond market opened softer by 25-50 cents in price on auction day, however rallied again after incoming bids were revealed to be spectacular at IDR34.6 trillion, almost 3x of IDR12 trillion MoF initial target. After auction result was announced, profit taking action was seen especially on auctioned bonds (FR53, FR56, FR73) as government add more supply to the market by upsizing the issuance by IDR3 trillion from its target to IDR15 trillion. We expect correction to happen, however buyers will be ready to buy on dips, thus supporting the market. Trading volume in the secondary market jumped to IDR23.3 trillion.