FW: CIMB Daily Fixed Income Commentary - 08 Sep 2017 - UST moves to yearly highs / Relooking our MYR forecast

 

Market Roundup

• US Treasury yields have dipped to yearly lows amid recent developments which not least included the Fed sounding less and less hawkish. On Thursday, UST reacted to ECB president Draghi's comments, which he revealed that the central bank is moving towards decisions on QE in Oct meeting. Policymakers held the policy rate unchanged as widely expected. On the other hand, he pointed that "the recent volatility in exchange rates respresent a source of uncertainty which requires monitoring".
• In our Ringgit Weekly report dated 21-Aug-2017, we upgraded MYR to show a steady appreciation to 4.20 by 2018 on improving fundamentals (see 23-Aug2017 Thematic Fixed Income Outlook for our positive view of the sovereign balance sheet), but the heated pace of the recent rally was unexpected for our end-2017 forecast. We believe interest rate differentials are aligned towards MYR strength in light of neutral Bank Negara Malaysia policy outlook versus neighbouring central banks which had been on the dovish side recently. That said, our overall macro strategy to remain overweight MYR and MGS remains intact given fundamental improvements and attractive valuations (see Macro Outlook & Strategy report 25-Aug-2017). In view of the shift in base levels, we are in the midst of reviewing our MYR currency forecast for further upgrade across multiple time horizons.
• Malaysia: MYR govvies extended gains in conjunction with firmer MYR, as USD/MYR headed lower towards 4.2100 late Thursday. Secondary trading was active, with daily volume up to RM5.8 billion, from RM4.7 billion registered on Wednesday, while flows concentrated on short and medium term papers. Aside, sentiment remained positive with central bank decided to stand pat on rate in latest MPC meeting.
• Thailand: Foreign players continued to buy Thai bonds at Bt2.17 billion in a day of thin trading with outright trading value declining to Bt82.75 billion. Investors may avoid holding position before ECB policy meeting possibly due to concern about hawkish policy outlook.
• Indonesia: IndoGB was relatively quiet on Thursday compared to the day before. Market was traded sideways for most of the day, with some exceptions on particular series in 5- to 10-year buckets, where bidders looked eager to collect bonds with those tenors. At the end of the day, yield curve moved -6/-2/-3/+4 bps. Total volume fell to IDR15.7 trillion whilst trades were equally distributed across tenors.
• AKR Corporindo Jul'20 and Adira Finance were the most traded papers on Thursday in Indonesian credit market. Market volume doubled to IDR1.16 trillion.

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