Demand for US Treasuries surged along with other safe haven assets (UK gilts, German bunds) post Brexit shock.

Attached is the monthly market commentary for Jun 2016. We have included the near term outlook for the month of Jul 2016.

• Demand for US Treasuries surged along with other safe haven assets (UK gilts, German bunds) post Brexit shock. Apart from that, the Bank of England governor Mark Carney sounded dovish and signaled a potential easing following Brexit, helping to anchor safe haven sovereign bond yields in the lower ranges.
• Furthermore, the market perceive the Fed will eventually raise rate at a more gradual pace, in view of the recent Brexit shock, subdued May NFP and recent FOMC meeting when policymakers cut down their rates outlook. We think that the players have priced in a very gradual rate hike path, as futures trading showed a low 9.2% (end Jun) that Fed will hike rate by 25bps this year, in contrast to 74% a month ago. On the flipside, there was another 8.0% seeing the Fed to cut rate this year.
• Upcoming focus will be on the Jun NFP number (consensus +175k against +38k in May) to be released this Friday, as well as FOMC meeting slated for 27 Jul. We think that US Treasuries may continue to see support in the near term period, mainly due to the low yielding environment in major economies (EU, UK and Japan), but we are slightly cautious that US Treasuries may see knee-jerk pressure as we cannot rule out any positive surprise from the Jun NFP or FOMC meeting.
• We think the Thai bonds will remain well supported in the near term, given the recent release of soft economic. However, pending the US NFP number, we are slightly on the cautious as players may prompt profit taking activity seeing that yields substantially fell in Jun.
• We expect IDR bonds to strengthen in Jul, aided by the low inflation, tax amnesty approval and also anticipation of a fifth rate cut by BI. On the flip side very high inflation in coming months due to Idul Fitri holidays and school’s new year would be negative on government bonds. We see the 10-year bond to end the year at 6.25%.
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