Tuesday, February 7, 2017

Earlier in Jan, UMW announced its decision to pull out from O&G business with complete disposal of UMWOG to its shareholders. RAM Ratings viewed it as credit positive, despite no immediate impact on ratings, but we noted some recent demand tapping on UMWH tranches. We like UMWH Oct’19 (4.85%) and Feb’21 (4.99%), with target profit of 10-15bps each, given the huge discount priced against the other AA2 papers – KESAS Oct’20 (4.46%) and FRL Oct’21 (4.73%).

Market Roundup
  • US Treasuries strengthened on the back of declines in both equity and oil prices. Brent crude oil dipped to $55.72/bbl from $56.81/bbl, while DJIA corrected a tad from 20,071 to 20,052. Also, UST yields were weighed by the weakened European stock markets amid rising concerns over the French election in Apr.
  • We expect support for UST this week amid a lack of pertinent economic data and a Fed-speak by couple of FOMC voting members (Evans again and Philadelphia’s Harker) but gains could be tempered as players may focus on politics whilst at the same time the Treasury Department holds auction for the 3T ($24 billion), 10T ($23 billion) and 30T ($15 billion). We maintain short 10T at 2.45-2.55% short term, and look towards 2x10 spread >120bps.
  • Indonesia’s 4Q2016 GDP expanded by 4.94% yoy, pretty much in line with market expectation 5.00%. Meantime, USD/IDR was moving in lower range of 13308-13340, amid broadly weaker USD early this week.
  • Ringgit government bonds were dealt firmer post last Friday’s NFP release, with slight recovery in MYR on Monday. Flows were heavy, with daily volume totaling RM3.2 billion (higher than RM2.8 billion recorded late last week), led by short dated MGS Mar’17, Oct’17 and Nov’21.
  • Earlier in Jan, UMW announced its decision to pull out from O&G business with complete disposal of UMWOG to its shareholders. RAM Ratings viewed it as credit positive, despite no immediate impact on ratings, but we noted some recent demand tapping on UMWH tranches. We like UMWH Oct’19 (4.85%) and Feb’21 (4.99%), with target profit of 10-15bps each, given the huge discount priced against the other AA2 papers – KESAS Oct’20 (4.46%) and FRL Oct’21 (4.73%).
  • Thai sovereign bond yields shifted lower about 4-7bps across the curve tracking US Treasuries last Friday after weak US wage growth in Jan pointed to tepid price pressure and decreased the possibility of aggressive Fed rate hikes in 2017. IRS curve was also in bull-flattening mode as mid- to long-end rates shifted lower by 4-6bps. We expect the rates market will consolidate in range while waiting for new directional factor and the MPC meeting on Feb 8 is the watch.
  • Indonesian government bond market continued its upward movement in price term since Friday, supported by net buying inflows post- NFP, with activities centered on short-to-medium tenured bonds. Tone was quite biddish on Monday, which we think will be carried forward to the IDR Syariah bond auction, where MoF targets to issue IDR6 trillion. Demand for the auction should remain solid, with most of the incoming bids will be flowing towards 6-month SPNS bills up to 7-year Syariah bonds. Market volume leaped to IDR17.2 trillion and was dominated by bonds maturing in over 10 years (40%).

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