CIMB Daily Fixed Income Commentary - 23 May 2016

Market Roundup

• US Treasuries closed little changed last Friday but was considerably week-on-week as players priced in higher probability of a sooner-than-expected Fed rate hike, after last week’s hawkish FOMC minutes were released. Last Friday, only existing homes sales were released, showing slightly higher than expected +1.7% mom growth in Apr versus +1.3% consensus but much lower than +5.7% in Mar.
• Contained in the FOMC minutes, policymakers viewed that the financial markets and global economic conditions improved in 1Q2016. The Fed see support to consumer spending and business investment going forward. A few participants thought that it is appropriate to raise rate during Apr meeting, whilst most policymakers agreed that if the economic growth, labor market conditions and inflation continue to improve in second quarter, it may be appropriate to raise rate in June meeting.
• Ringgit govvies posted losses Friday. We think that the selling pressure may be due to knee-jerk reaction, after the central bank decided to maintain its policy stance, which was against some rate-cut speculation earlier. Meanwhile, WI for the new 10-year MGS benchmark was last heard at 3.88/86%, about 3-5bps above the current 10-year benchmark (MGS Sep’25) which points to possible firm demand for the coming auction. Elsewhere, CPI came in line with market expectation at 2.1% for the month of Apr.
• Thai bond market was closed for Wisaha Bucha Day.
• Indonesian government bond prices continue to slide down as the IDR depreciated to 13,650 level. We hear foreigners were trimming their government bond position (along the bellies to long end of the curve) as we head closer to the Jun FOMC meeting, whilst local funds and foreign sovereign funds were bidding at the long end. Near closing hour last Friday, a firmer IDR to 13600 boosted bids towards government bonds. We maintain our bullish view on IDR bonds as talks on Tax Amnesty bill intensifies. Market volume was stable on Friday amounting IDR10.4 trillion, dominated by papers maturing in over 10 years (48%).