CIMB Daily Fixed Income Commentary - 22 Mar 2016

Market Roundup

• US Treasuries weakened with yields up 3-5bps amid higher crude oil prices and players reacting to hawkish comments from Fed members. San Fransciso Fed president John Williams revealed that he would support a rate hike in either Apr or Jun if economic data continue to perform as he expects. Also, Atlanta Fed president Denis Lockhart said economic data proved there is sufficient momentum to go for another hike as early as Apr. However, both of them are not voting members of Fed policy committee this year.
• USD pared weakness against major rivals post dovish FOMC outcome. USD/JPY edged higher to near 112.00, after hitting the lot at 110.67 late last week. Also, EUR/USD was pared lower to 1.1242 from the peak of 1.1342 amid profit taking activities.
• Malaysian government bond market saw thin trading interest, whilst the yield curve shifted higher on the back of mild profit taking pressure. Meanwhile, Bank Negara announced auction for the 10-year GII, which came at a size of RM4 billion. WI was last quoted at 4.10/08%, whilst traded at 4.10% with RM100 million dealt on Monday. Tender closes on Wednesday.
• We think that a firmer Ringgit will continue to aid bonds in the near term, on top of the dovish tone from the Fed. However, we are wary of an uptick in Malaysia’s inflation which could deter bond market sentiment in the short to medium term horizon. This week, highlight will be release of the Feb CPI. Consensus estimates is a further uptick of +4.2% yoy, from 3.5% registered in Jan. Our economist expects CPI to peak at 4.1% in 1Q2016, but to trend lower going forward as the GST effects normalizes, while seeing it to average 3.3-3.5% in 2Q2016. In lieu of fresh drivers, the 5x5 swap spread should remain rangebound near 25bps.
• THB denominated government bonds closed mixed amid thinner trading interest heading into the MPC meeting. Daily volume continued to fell to Bt17 billion, from Bt20 billion recorded late last week. Expect players to stay at the sidelines awaiting guidance from MPC meeting.
• Elsewhere, we see potential knee-jerk reversal in falling swap rates, if BoT fails to cut its policy rate this week and if THB does not show further gains, leading to bond-swap spread to widen mildly by 2-3bps.
• Indonesia government bond market extended losses, in line with weaker Rupiah. In general, market was quiet on Monday, coupled with some continued profit taking actions. MoF will be holding IDR syariah bond auction today with IDR4 trillion indicative target. We expect the demand to be solid, especially on short dated auctioned series. Market volume halved to IDR10.8 trillion.