· Tepid demand, auction tailed. A soft tone in today’s 20y MGS 4/37 auction dra

Results: MGS 4/37 New Issue

·         Tepid demand, auction tailed. A soft tone in today’s 20y MGS 4/37 auction drawing a bid/cover of just 1.585x despite an expected MYR3b size (MYR2b auction + MYR1b private placement). For long bonds in 15y-30y sector, this is the weakest bid/cover since September 2014. Successful yields averaged 4.762% and cut at a high of 4.799% which tailed the pre-auction WI of 4.74/70 by some distance.

·         Competing supply from LPPSA… While we think bid/cover should slow as we move into late-2Q/2H17, we didn’t expect a weak show today given its moderate MYR2b auction size, although market appetite might have been somewhat impacted by competing supply from LPPSA which priced its GG bonds yesterday raising a total of MYR3.25b, MYR1.5b of which in 15y-30y sector.

·         …or market fatigue in long durations? If this is the early signs of market fatigue in durations, it could mean curve steepening risk especially along the 10y30y as the gross supply of 15y-30y government bonds is estimated to total MYR41b in 2017, a jump from MYR25.5b in 2016 and MYR11.5b in 2015.

·         Next auction is the new issue of 5y GII 4/22. We estimate a size of MYR4b.

Bid to cover:            1.585

Highest yield:           4.799%

Average yield:         4.762%

Lowest yield:           4.725%

Cut off:                   91%