Friday, March 10, 2017

· Uninspiring bid/cover, but not a surprise. Today’s 5y MGS 3/22 auction drew a

Results: MGS 3/22 New Issue
·         Uninspiring bid/cover, but not a surprise. Today’s 5y MGS 3/22 auction drew a relatively weak bid/cover of 1.538x, the lowest since May 2016, on an expected MYR4b size. While uninspiring, this didn’t come as a surprise due to the lack of foreign participation and local real money accounts are generally less keen on this low-yielding part of the curve. For example in the previous two 5y MGS auctions in 2016, bid/covers are equally low at 1.42x and 1.67x.
·         Next 15y GII auction should see bid/cover >2.0x. What is not helping of course is the recent upward pressure on global core sovereign yields led by the US Treasuries, so market sentiment is generally cautious and understandably many players prefer to stay on the sidelines until the FOMC meeting on 15th March. We won’t read too much into this auction as a gauge of demand. Instead, the next 15y GII auction should see bid/cover of >2.0x – if not then it would be a cause of concern, but unlikely.
·         WI was quoted at around 3.90/87 early the morning before tightening to 3.88/87 nearer to auction close. Actual results came out with a small tail as successful yields cutting at 3.903% while the average was 3.882%.
·         Next auction is the new issue of 15y GII 8/33. We estimate a size of MYR3b

Bid to cover:            1.538
Highest yield:           3.903%
Average yield:         3.882%
Lowest yield:           3.859%
Cut off:                   3%

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