CIMB Daily Fixed Income Commentary - 03 Jun 2016

Market Roundup

• US Treasuries posted gains amid cautious trading ahead of the release of the May non-farm payrolls, worries after OPEC did not agree on output cuts, and boosted as ECB president Mario Draghi indicated risks on the Euro Zone economy remains (signaling further monetary stimulus). However, gains were pared after the release of the May ADP report which showed an increase of 173k, meeting consensus and higher than the Apr upward revised number of 166k.
• Consensus for non-farm payrolls is 160k for the month of May, similar to the Apr increase. Ahead of the mid-month FOMC meeting, Fed chair Janet Yellen is due to speak next Monday.
• EUR was holding steady ahead of the ECB policy meeting Thursday, seen around 1.1193 at the open of the European trading session, with increased expectation the ECB will hold interest rates, as well as not announcing fresh stimulus measures.
• The European Central Bank then decided the main refinancing rate, rate on the marginal lending facility, and rate on the deposit facility will be unchanged at 0%, 0.25% and -0.40% respectively. After the policy meeting, ECB president Mario Draghi said the Euro Zone economy is recovering (+0.5% growth in 1Q2016), driven by domestic demand. However, with inflation not expected to hit the 2% target any time before the 2018 target, the ECB looks ready to take further stimulus measures if needed.
• Ringgit denominated government bonds were dealt within a narrow range. There were small gains along the new 5-year MGS which shed 1bp to 3.58%. Post-auction demand despite the weak auction boosted the new benchmark. Elsewhere, gains were mostly due to bargain hunting activity despite the weak MYR which was hovering near 4.1606 late Thursday though it had surged to around 4.1750 mid-session.
• Trading of MYR corporate bonds was light at volume of just RM70 million. Yield levels moved mixed but there were gains along short to medium tenor AA papers, such as AA1 YTL Power Jun’22 (-19bps to 4.58%) and AA3 ACSB Nov’19 (-18bps to 4.81%). We still like long dated TBEI but also noted that long dated AA3 JEP Dec’28 shed 1bp to 5.00% though on small volume.
• Thai Baht government bonds posted gains with yields down 2-5bps Thursday. Elsewhere, THB was steady around 35.618 late Thursday versus 35.666 a day prior. The heavier traded government bonds were LB206A which fell 5bps to 1.85% and LB21DA which ended 5bps lower to 2.01%. Foreign players were net buyers of Bt716 million of THB bonds versus net sellers of a larger Bt2.3 billion a day before.
• IDR government bond yields rose Thursday, opening 7-10bps as players reacted to the S&P announcement to hold the country's rating unchanged at BB+ with Positive outlook. However, led by local players, the market used the opportunity to buy on dips. It will be interesting to see how much incoming bids the government can attract in next week's bond auction post-S&P news. Now eyes will also be on tax amnesty bills decision for the next catalyst. Volume improved to IDR8.5 trillion and dominated by bonds maturing in over 10 years (62%).