UST yields edged lower across the curve Thursday after surging the day prior driven by FOMC minutes. Meanwhile, there were mixed comments from Fed members as St Louis Fed president James Bullard was concerned that aggressive tightening may dampen economic activity, adding that four rate hikes in 2018 appear to be excessive. On the flipside, Fed vice-chair for financial supervision Randal Quarles reckoned the "current shortfall in inflation from target is most likely due to transitory factors that will fade through 2018".
Malaysian government bonds weakened with benchmarks moving up 1-3bps higher by the close, but overall market volume was pretty low around RM1.3b only. Sentiment was negatively affected by overnight weakness along the UST market. Meantime, IRS also rose in tandem. The 10y MGS Nov'27 was dealt to a daily high of 4.068% before closing at 4.06%. To recap, overnight UST rose 5-7bps upon release of the latest FOMC minutes, which amongst others sounded Fed's optimism on growth and inflation (expecting inflation to gradually rise towards 2% in medium term).
Thai bond consolidated in range despite overnight UST selloff. Foreign net selling activity was limited to the short-ends as the Baht above key level at 31.50 and the auction of 2y BOT202B saw weaker demand (btc at 1.43x from last auction at 2.19x on 14 Dec 2017). Meantime, net selling pressure in the long-end was halted seeing LB316A post-auction proved onshore liquidity remained robust and Thai bonds showing resilience against external environment of surging yields.
IDR bonds weakened especially extensively along the bellies and far end of the curve, due mainly to offshore net selling pressure, despite recent inclusion of IDR government bonds into Bloomberg-Barclay's bond indices. There was support for 10y bonds at high of 6.67% before closing below 6.60%.
Asian dollar credits moved little despite the overnight UST selldown. The iTraxx Asia ex-Japan IG index was pretty steady, moving less than half a basis point on Thursday. Volatility in the overall global bond market may have pressured investors to move to the sidelines. This limited a sell down in dollar credits in Asia especially with 10T anchored below 3.00% still, despite reaction to the FOMC minutes.
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