UST Yields Held Above the 2017 Range Bottom

5 April 2017

Rates & FX Market Update

UST Yields Held Above the 2017 Range Bottom

Highlights

¨   Global Markets: US Treasury yields rebounded higher overnight after testing YTD lows yesterday with yields on 10y retracing higher to 2.36%. Profit-taking alongside the marginally better-than-expected trade balance and durable goods orders may have helped bolster near-term sentiment amid political and geopolitical uncertainties under President Trump. We retain our neutral dollar stance, as the uncertain US fiscal outlook continues to limit our appetite for USD. Belly and long-end EGBs broadly rallied overnight with rates continued to re-price towards the dovish end, as ECB policymakers retained their largely dovish rhetoric, despite increasingly diverging opinions within the governing council pertaining to policy tightening. While we do not expect any pre-mature tightening of monetary policies over the coming months, we continue to keep a keen eye on Eurozone economic and political developments, with improved outlook and certainty likely to drive EU rates materially higher from current levels given the degree of overvaluation; maintain preference of core over peripheral papers.

¨   AxJ Markets: THB slipped 0.29% against the USD overnight, as concerns over BoT’s measures to rein in the Baht’s strength continued to follow through. Having limit the supply of short-term bills, BoT mulled additional measures to deter short-term foreign inflows to maintain the THB’s competitiveness. We stay neutral towards the THB, eyeing 34.0 as the next major support level. Meanwhile, the Nikkei Singapore PMI climbed further to 52.2 in March (previous: 51.4), underscored by stronger expansions in output and new orders. Recent improvements in economic data also begun to highlight rising cost pressures, which is likely to support an increasing inclination for MAS to shift into a neutral policy in April; keep a neutral positioning on SGD over the medium term.

¨   AUDUSD fell 0.51% overnight after RBA sounded more downbeat on the labour and housing market, driving speculations that the bank is unlikely to raise rates in the near future. RBA is willing to deploy more macro-prudential measures to rein in the property markets, following up on APRA’s measures last week, rather than deliver rate hikes amid mixed labour market conditions; stay neutral AUD over the near to medium term.

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