FW: CIMB Fixed Income Monthly - Oct 2017 - US weighs on regional bond markets

 

 

RATIONALE SUMMARY

• US Treasuries posted losses despite the hurricane-influenced Sep 2017 NFP (at decline of 33k in Sep) as players focused on unemployment declining to 4.2%, the lowest since Feb 2001. But highlight was on optimism over the GOP tax plan, which framework was agreed upon by both sections of Congress.
• In Malaysia, the 10y MGS rose above 4.00% but eventually attracted bargain hunting interest and pared lower to 3.90% end-Oct. However, the 30y MGS was traded a tad wider at 4.97%, following a disappointing reopening auction. In our opinion, overall sentiment remains guarded, but we think MYR bonds should see support with stabilizing UST.
• We expect consolidation in the IDR bond market in Nov after yields had surged last month. In our opinion, domestic bond market should see signs of recovery if UST stabilizes while Indonesia's global bond CDS premium remains at very low level. BI rate cuts and S&P rating upgrade should continue supporting IDR bonds although there is pressure from Fed's anticipated Dec 2017 tightening. We see range of 5.8-6.9% for 10y bond for the rest of this year.
• In Thailand, we expect the MPC to keep interest rate unchanged at 1.50% on Nov 8 and the statement is unlikely to shift market expectation of no change in interest rates into the foreseeable future. Moreover, inflation expanded tepidly at 0.86% in Oct and front-end rates should be under less pressure (from low inflation condition and ultra-light supply). On the other hand, LB supply will be loaded at the long-end and we expect a moderate higher shift in the curve influenced by high UST yields. We expect a steeper LB curve with 2x5 spread target at 44bps (current  spread at 37.6bps).

Best Regards,
CIMB Treasury & Markets Research-Fixed Income
Tel: +603 2261 8557 | Fax: +603 2261 8705
www.cimb.com
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