CIMB Daily Fixed Income Commentary - 31 Mar 2016

Market Roundup

• UST yield curve ended steeper, as the short end yields dipped on the back of dovish comments made by Fed chair Janet Yellen a day prior. However, longer dated bonds weakened on the back of improved risk-on sentiment, following gains in both stock markets and crude oil. Meantime, the Treasury Department sold $28 billion worth of 7-year notes mid-week. Demand was good, with a bid-cover ratio of 2.51x, much higher than the 2.25x registered in the similar auction conducted the previous month, whilst high yield stopped at 1.606%. On top of that, indirect bidders took 57.8% of the sales, above 53.5% garnered previously.
• We await this week’s Mar non-farm payrolls data. Last week, the 4Q2015 GDP was revised upward to +1.4% versus the advance estimate of 0.7% and the second estimate of 1.0%. Major driver for the upward revision in 4Q2015 GDP was personal consumption expenditure (PCE) – this was revised upward to +2.4% against +2.0% prior estimate. Consensus forecast for Mar NFP is +205k but lower versus +242k in Feb.
• US Dollar extended losses against rivals, following the dovish remark made by Fed chair Janet Yellen the previous day. EUR/USD showed further uptick to above 1.1300, from 1.1160 posted earlier in the week. USD/JPY edged lower to 112.43 from 112.70 Wednesday. Meantime, GBP/USD tested 1.4450, but was pared lower and closed at 1.4378. Short term resistance remains at 1.4500 at this juncture.
• Malaysian sovereign bonds posted gains on the back of overnight UST rally and comments from Fed’s Janet Yellen (that the Fed will take a cautious outlook for pulling the trigger to lift the Fed Funds Rate). MYR was also firm but Brent crude was hovering weaker below the $40 per barrel level. Aside, the smallish RM2.5 billion reopening auction of the 15-year GII racked a bid-to-cover ratio of 2.37 times and an average yield of 4.201% (high 4.214% and low of 4.174%).
• Thai government bonds closed firm on heavy volume with benchmark papers shifting up to 5bps lower. Traded volume was about Bt33.4 billion Wednesday versus Bt18.7 billion the day before. Foreign investors were heavy net buyers of Bt11.9 billion of THB bonds whilst THB was firm around 35.228 late in the day.
• Similarly, Indonesian govvies rallied as a result of dovish comments by Fed’s Janet Yellen. Offshore buying flows were seen since the market open and added by foreign onshore banks buying action. Local investors also chased bonds especially in the 20-yearr bucket. We expect the positive momentum to continue today with good news coming locally, where government will cut RON88 fuel prices by 7% effective April 1st. Market volume increased to IDR18.6 trillion.