CIMB Daily Fixed Income Commentary - 23 Feb 2016

Market Roundup

• US Treasuries consolidated with yields inching higher as risk-off sentiment eased following gains in both the stock markets and crude oil. Brent crude closed at $34.69 versus $33.01 last week whilst short to medium tenor UST inched up 1bp.
• How the coming week will pan out will depend chiefly on crude price movements and reception to incoming US macro data. Despite this, we expect a steeper curve and nudge our 10-year Treasuries target higher to 1.85%, with exit at 1.75%, to take into account further reaction to last week’s inflation data. CPI rose 1.4% yoy in Jan, beating consensus estimate of +1.3% and much higher versus 0.2%, 0.5% and 0.7% in Oct, Nov and Dec 2015 respectively.
• Muted trading interest seen in Ringgit govvies early this week, as daily volume dipped from RM1.9 billion to RM1.3 billion on Monday. We expect profit taking pressure along the bellies and far end of the MGS curve this week, as we expect MYR to show weakness whilst UST yields head north. After last week’s 3.85%, we now expect 10-year MGS to test resistance of 4.00%.
• Indonesia government bond market weakened on Monday despite Rupiah appreciated to 13,450 level. Seems like players tried to shorten duration, where we see bonds in the 15- to 20-year buckets were sold, and selective buying seen on very short-dated bonds up to 5-year. MoF will be holding IDR Syariah bond auction today, we think demand will still be solid especially on the short dated bonds and bills. Volume was steady amounting IDR10.7 trillion.