CIMB Daily Fixed Income Commentary - 15 Mar 2016

Market Roundup

• US Treasuries recovered a tad from the day previous, led by decline in crude oil prices. Brent crude oil closed at $39.53/bbl, down from $40.39/bbl recorded last Friday. Meantime, the 10T dipped below 2.00% to 1.96%. We see next resistance at 2.05% before heading to 2.12%.
• Highlight this week will be the FOMC meeting, while macro indicators include housing starts, CPI and industrial production, plus US capacity utilization figures from Fed ahead of the FOMC meeting. The 10T is at its highest since end of Jan as players were increasingly cautious of a potential Fed hike this week, spurred by improved jobs data and somewhat decline in global financial market volatility. The VIX index has been contained in the past week but the MOVE index is still showing pretty volatile levels. Latest Fed Funds futures trading show implied probability of 4.0% for a FFR hike (versus 12% over a week ago).
• Malaysian sovereign bond yields rose, tracking the weaker Ringgit. We expect mixed to firmer movement to persist as we await the FOMC meeting (where the Fed is not likely to hike rates as yet). Players will also be watching the crude oil and USD/MYR levels though increased hopes of output limits by major oil producers (come the 20 Mar producers’ meeting) should support bonds.
• Thai govvies closed little changed, after the yield curve bear-steepened late last week. We think that sentiment may turn slightly cautious ahead of FOMC meeting, but should be supported with anticipation of weak economic outlook, signalled by BoT governor earlier. Meantime, daily volume dipped from Bt35.0 billion to Bt26.2 billion on Monday, with focus on LB196A and LB25DA.
• Indonesia’s government bond market saw mixed flows on Monday, after it opened with stronger bids on the back of lower USD/IDR. However after the break some selling actions were seen on benchmark series at belly to long end of the curve, possibly in anticipation of today's bond auction, where MoF targets to issue IDR 12 trillion. We think today's auction may attract solid demand from both local and foreign investors. Market volume increased to IDR15.3 trillion.