CIMB Daily Fixed Income Commentary - 16 Jun 2016

Market Roundup

• US Treasuries reversed losses and closed firmer on the back of knee-jerk reaction after the Fed officials as expectedly maintained the FFR at 0.25-0.50%, whilst maintaining its accommodative policy stance. On top of that, it stated that labor market improvement was seen with a slower improvement, whilst economic activities picked up. On the inflation outlook, the Fed expected inflation to remain low in the near term, dragged by fall in energy prices, but will increase to 2% in medium term.
• Elsewhere, the latest Fed projections showed that the policymakers turned dovish, seeing slower pace of rate hikes from now on with 6 of 17 see one hike this year versus only one last time. Also the median FFR projections were lowered for 2017 and 2018 to 1.6% and 2.4%, from 1.9% and 3.0% made in March, whilst the 2016 projection was maintained at 0.9%. Apart from that, they anticipated slower GDP growth at 2.0% for 2016, 2017 and 2018, from 2.2%, 2.1% and 2.0% respectively.
• Ringgit sovereign bonds closed marginally weaker amid muted trading flows, as players preferred to stay at the sidelines ahead of the FOMC meeting. Elsewhere, USD/MYR edged lower and hovered near 4.1000 late Wednesday.
• Thai govvies further weakened, amid selling pressure driven by bond auctions and cautious sentiment ahead of FOMC meeting outcome. Similarly, IRS rates rose by 5-9bps across the curve during mid-week. The longer dated LB366A auction (Bt10 billion) received a relatively low bid-cover of 1.50 times, whilst average yield stopped at 2.6067%. On the flipside, the Bt24 billion LB206A was in good demand with a high bid-cover of 3.32 times, and average yield of 1.7095%.
• Indonesian government bond market opened lower by 25 cents in price term, as USD/IDR touched the high at 13400 on Brexit concerns. Foreign onshore banks were seen with net selling interest, but market was supported by the heavy bidding interest shown by local investors. Apart from that, upon London opening hour, market appeared to be slightly more biddish, with players bidding on the 5- and 10-year benchmarks.
• Asian dollar credit market saw muted flows ahead of the FOMC meeting outcome. Despite that, sentiment improved marginally, with CDS spreads tightened by 2-3bps, recovered a tad from prior day losses.