Strategy
- US Treasuries
- Long 10T with short term target 2.10% before profit taking pressure comes in.
- Long 2T guided by 2x10 spread at 90bps. We don't see 2T remaining a laggard for long and anticipate spread to widen once 10T yield falls.
- Current support for UST include safe-haven demand amid geopolitical concerns, dovish Fed (including FFR futures now even pricing in small rate cut probability), and recent weak data especially low inflation numbers.
- Malaysia govvies
- Long 5-year MGS with short-term target 3.55%.
- We believe demand for MGS could come ahead of anticipated slightly slower 2Q2017 GDP data to be released later this week.
- Weak GDP anticipated comes after recent weak macro data, specifically Jun CPI and IPI.
- Further support for MGS comes with anticipated foreign inflow support. There was a net outflow of RM1.46 billion in MGS+GII last month, but all in we think outflow due to the Trump trade has tapered off.
- Malaysian corporate bonds
- TNB Aug'37 (AAA) tightened by 8bps to 5.10% since it was issued early Aug. We think that the level is relatively tight, and may see limited gains in the near term period. Thus, in comparison, shorter EKVE Jan'36 (AAA) at 5.16% offers 6bps pickup in yield instead.
- Indonesia govvies
- Target 10-year govvies at 6.90% remains.
- We assume support for IDR govvies from anticipated firm UST, sustained foreign interest and recent weaker than expected GDP and inflation numbers.
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