Friday, October 27, 2017

FW: CIMB Market Musings - 30y MGS auction



Poor demand amid weak sentiment

Poor tender result. Demand was poor for the RM2 billion 30-year MGS reopening auction (excluding RM0.5 billion for private placement), reflected by a low btc of 1.603x and average yield of 4.957% (within wide spread of 4.85-5.00%).

Limited downside risk. We are not overly concerned by the weak auction result, but instead of looking it positively as it offers attractive yield at 4.96%, where we believe it to be well capped at the historical peak around 5.03% registered in Nov 2016 driven by the slump in bond market. In addition, the 10x30 spread widened to 96bps, from a median spread of 76bps over the past one year period. Even factoring at a wider spread of 86bps (against median spread of 76bps), we think that it appears to be relatively cheap at 4.96%, where it should be trading around 4.86% at this juncture. Furthermore, global bond markets may take a breather pending further developments in US tax bill and Fed chief nomination, as well as central banks' decisions (ECB today, BoE and FOMC next week). Domestically, players are eyeing on Budget 2018 which will be tabled on this Friday. We reckon that buying-on-dips interest may eventually emerge post series of risk events if central banks' stances turn out to be less hawkish than expected.

Best Regards,

CIMB Treasury & Markets Research-Fixed Income
Tel: +603 2261 8557 | Fax: +603 2261 8705
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