Friday, March 10, 2017

US Treasury yield curve moved higher and steeper, extending losses ahead of highly likely Mar rate hike. The 10T yield closed at 2.61%, approaching the peak of 2.64% in Dec 2016. Furthermore, the higher Euro sovereign yields also aided in pushing the UST yie

Market Roundup
  • US Treasury yield curve moved higher and steeper, extending losses ahead of highly likely Mar rate hike. The 10T yield closed at 2.61%, approaching the peak of 2.64% in Dec 2016. Furthermore, the higher Euro sovereign yields also aided in pushing the UST yields higher, after the ECB sounded more optimistic on economic conditions while holding rates unchanged on Thursday.
  • USD weaker after DXY had risen above 102.20 early Thursday, but there was limited reaction to the ECB statement as it did not depart much from previous statements and the ECB decided to keep things steady. Interest rate on main refinancing operations remained at 0.00%, marginal lending rate at 0.25% and deposit facility at -0.40%. Further, the Governing Council continues to expect these rates to remain at present or lower levels for an extended period of time and well past the end of asset purchases. Asset purchases will continue at €80 billion a month till the end of this month and then will be at €60 billion a month till the end of the year. The council is also ready to extend the purchases should it be necessary. To note, the policy statement did not address the reduction of purchases.
  • Ringgit denominated bonds posted losses, tracking the higher UST yields. The new 5-year MGS auction saw relatively weak demand with bid-to-cover ratio of 1.54 times for an issue size of RM4 billion. Average yield settled at 3.882%, a tad higher than WI 3.875/865% quoted on Wednesday. In our opinion, the weaker-than-expected demand may be due to softer sentiment amid rising UST yields ahead of FOMC meeting scheduled next week.
  • Thai bonds were traded down with as bear-steepening move as 5 years and longer term bonds increased by 2-4bps after upbeat US ADP employment report strengthened the confidence in Fed rate hike and foreign investor sold off short-term and long-term bonds concentrating on 5-year LB236A and LB25DA. At this point, few local players started to buy bond on dips but positions remained light as the FOMC meeting is around the corner.
  • Indonesian government bond market drifted lower Thursday, reacting to UST yields that kept rising (10-year yield at 2.56%). Market was generally quiet, only showed some flows near closing hours, where some position-trimming were seen on benchmark series, sending yield curve higher by 7-9bps on average. Market volume decreased to IDR14.9 trillion and still dominated by bonds maturing in over 10 years albeit in smaller percentage (34%) than on previous day.

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