- US Treasuries weakened with markets awaiting FOMC this week. The hike is pretty much a given and concentration will be on how the Fed will proceed with the following hikes. This meeting will be accompanied by a summary of economic projections which will include the dot plot chart indicating the FOMC member’s expectations of where rates will be in the future. Considering the recent Fed Speak, seems like some members are comfortable with up to three hikes this year. Also, members have indicated that they have not taken into account fiscal policy in their rate projections which shows a potential for an upside surprise should tax cuts and infrastructure spending goes through.
- In Fx markets, it was largely quiet overnight with the dollar seeing a scant 1% gain in the US session with little in the form of data or news. Participants were largely on the sidelines looking towards the FOMC which begins its two day meeting today.
- Ringgit government bonds were lightly traded with FOMC meeting still upcoming but the firm NFP last Friday did not incite demand for bonds. Elsewhere, we note the 5x5 swap spread moved into negative territory last week, though the bond level was lifted by the new 5-year MGS auction which was slightly longer in maturity, but this should still pare down on shorter tenor bond yields in the next couple of weeks. For longer tenors, assuming a Fed rate hike this month, resistance for 10-year MGS likely at 4.30% and MGS against UST spread of sub-170bps. Malaysia’s industrial production rose just 3.5% in Jan following a 4.7% gain in Dec and weaker than the expected 5.3%. Gains were led by manufacturing output which rose 4.6% in Jan tempered by the tepid 1.1% gain in electricity production and mining. Manufacturing sales which was released at the same time, powered ahead by 10.7% following a similar 10.7% gain in Dec.
- Thai bonds gained after NFP report did not provide additional positive surprises. LB yields corrected lower on Monday, reversing the prior week rise. This indicates limited upside risk in yields as demand for Thai bond remains firm. Therefore, we target buys for 3- and 5-year govvies at 1.80% and 2.30% respectively.
- IDR government bonds saw fresh demand after UST yields came down last week upon firm print out in the US Feb non-farm payrolls. Today’s bond auction will be closely watched, coming ahead of the FOMC meeting. Demand at the auction might be less-than-stellar but levels could attract bids on the longer tenors. We expect 10-year bonds to stay around 7.50% this week.