Friday, August 11, 2017

FW: CIMB Daily Fixed Income Commentary - 11 Aug 2017 - Geopolitics top drivers / New 3-year MGS eyed at 3.35-3.38%


Market Roundup

  • US Treasuries extended gains on the back of risk-off sentiment driven by geopolitical tensions. Aside, yields were weighed as New York Fed president William Dudley 'anticipates a continued moderate growth trend', along with strengthening labor market and inflation upticks towards 2% objective in medium term period. However, he mentioned that the inflation is not likely to reach 2% target this year.
  • Malaysia: Malaysian sovereign bonds were supported, tracking overnight gains in UST. Our channel checks signalled players continued to show demand in short dated papers, particularly around the 5-year tenors. Apart from that, Bank Negara announced auction details of the new 3-year MGS with an issue size of RM3.5 billion, lower than RM4.0 billion we anticipated. WI was heard at 3.45/40% on Thursday. However, we reckon the smaller-than-expected issue size should attract demand for the new benchmark paper, in conjunction with net buying interest for short dated papers in secondary trading. The current 3-year MGS was traded with a median spread of 31bps against 3-year IRS year-to-date, while the 3-year IRS appeared to be supported at 3.61%. Assuming a spread of >30bps, the new 3-year MGS is expected to be priced around 3.35-3.38% (where we think levels to be tight below 3.30%), with 3-year IRS hovering near 3.64%.
  • Thailand: Profit-taking pressure led by local financial institutions dominated trades Thursday (yields rose 2-4bps on the bellies and back-end causing bear-steeping move on the back of relieved geopolitical tensions). Net selling flows were heavy as low yields looked overly stretched amid no fresh drivers. Foreign investors substantially reduced position in short-term bonds by Bt3.6 billion as offshore T/N USD/THB swap points looked unattractive above zero, and they slightly cut position in long-term bonds by Bt69 million. While market correction could extend before Thailand market closes for long holiday, we expect risk of rising yields to be contained due to buying on dips.
  • Indonesia: IndoGBs opened slightly weaker as market turned to risk-off mode due to US-North Korea tensions. Market was quiet in the early session, and picked up pace on London open, with more transactions after the break. However, market kept providing strong support at current levels until close, and buyers seemed eager to collect bonds on dips, limiting the downside.


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