- US Treasury yields dipped following the release of FOMC minutes. The Fed minutes revealed that the central bank viewed weaker-than-expected aggregate spending in 1Q as transitory, while continued to see gradual move in monetary policy stance, the economic growth would moderately expand, job markets would further strengthen, and inflation would reach the 2% objective in medium term. Elsewhere, the policymakers agreed that it would be appropriate to review the Fed’s balance sheet this year (further discussion to be conducted in Jun FOMC), if the economy and rate normalizing path remain as currently expected.
- Malaysia: Government bonds closed mixed Wednesday, amid jitters caused by China’s rating downgrade, alongside cautious stance heading towards Fed minutes release. On the other hand, players also await details of the upcoming 7-year GII reopening, which is likely to be announced ahead of weekend.
- Thailand: The MPC maintained interest rate at 1.50% in unanimous vote as expected. In the statement, the MPC confirms low price risk from supply pressures. Agricultural prices rose in 2016 due to the drought causing higher base effect and slowed gain in CPI since Mar 2017. Headline CPI gained tepidly at 0.38% yoy in Apr. Furthermore, instability in oil price recovery could cause a swing in inflation in the coming period. It is noteworthy that the MPC sounded less worried about the baht’s appreciation as the statement expressed “movements in the baht over the recent period were in line with regional currencies.” Before the result of the MPC meeting, we expected to see attempts to weaken the baht amid market comments that a strong baht is not constructive for economic recovery or the BoT will look for policy tools to monitor FX movements. Mid rate 1-year THB IRS reacted 1bp lower to 1.535% from prior close of 1.55% and the government bond curve shifted lower 1-2bps (bull-flattening after the MPC signals prolonged low inflationary environment and unchanged policy direction).
- Indonesia: IndoGBs were traded down in a quiet market on Wednesday, volume was thin. Bond market looked offerish especially after China's rating downgrade by Moody's. Some market players trimmed positions, but locals mostly still showed bids although not aggressively. Volume fell to IDR17.2 trillion and mostly concentrated on bonds maturing in over 10 years (48%).