- US Treasuries rallied on flight for safe haven assets, as focus remained on geopolitical developments particularly after the UK Prime Minister Theresa May called for general election on 8 Jun. Demand for UST was aided by lower manufacturing output which fell 0.4% mom in Mar. But mostly, economic data were mixed. Housing starts was 1215k in Mar, lower than 1250k projection. Aside, industrial production registered growth rate of 0.5% mom, in line with market expectation. Rest of the week, with Tuesday’s gains, UST could come under profit taking pressure. However, we sense more risk-averse sentiment ahead of French election on 23 Apr.
- The UK election call caused USD to decline against major currencies with GBP breaking above 1.2800 and settling at 1.2850, reaching levels last seen six months ago. UK PM called for a snap general election for 8 Jun in order to secure the mandate for Brexit.
- Rising geopolitical tensions and uncertainty in Europe should have resulted in USD gains. In reality participants have elected to ditch USD as uncertainties mount. The decline would seem more logical when the past dollar movements are taken into account. Recall that the greenback has seen significant gains since the US elections. This is in anticipation of fiscal stimulus and with it the Fed hiking rates. USD also moved higher prior to the FOMC meetings in anticipation of an aggressive Fed reacting to improving economic conditions.
- Ringgit govvies were dealt weaker, tracking losses in UST early this week, due to improved risk sentiment. Flows remained light on Tuesday, led by shorter dated papers such as MGS Sep’22 and Sep’17. Pending Mar CPI data release, we reckon that bonds should see support especially amid geopolitical uncertainties (French and UK elections).
- Thai bonds halted gains and fluctuated in a narrow range as investor's risk aversion was reduced amid no development in the dispute between US and North Korea. Despite recent lower UST yields, Thai rates may not follow, and we do not expect firm Bt25 billion auction of 5-year LB226A as levels look pricey at 2.14%, or the lowest since Nov 30. Moreover, previous two auctions of the bond had an average yield of 2.24%. Therefore, we expect players will demand for higher yields with the bidding range of 2.14%-2.17% for this auction.
- IndoGBs drifted lower on lack of activity ahead of the Jakarta governor election. Volume was thin, yet bids still appeared although not aggressive. BI meeting will be held on Thursday, and market widely anticipate 7-days reverse repo to be left unchanged at 4.75%. MoF held IDR Syariah bond auction Tuesday, and from IDR14.3 trillion incoming bids, government downsized the issuance to IDR3.47 trillion from IDR6 trillion target with cut-off at current market level. Market volume fell to IDR5.5 trillion only.