FW: CIMB Fixed Income Daily - 28 Feb 2018 - Markets raise fourth hike expectations

 

 

Treasuries weaker. Details of Fed chief Powell's testimony to congress was released, where he pointed to continued economic growth and labor market ahead of Trump's tax plan execution. Powell warned financial market volatility will not deter the Fed from raising rates, though he still signaled the intended gradual pace of tightening. Fed fund futures pricing for a fourth rate hike rose – probability for a hike at the December FOMC rose from 22.0% to 25.2%.

Malaysian bond market was mixed ahead of Powell's speech. Sentiment was aided by overnight UST gains, as expectations were that Powell would not sound overtly hawkish seeing that a rate hike at next month's FOMC are mostly priced in by global bond markets. But focus was on RM3.5b reopening auction of the 10y MGS (plus RM500m private placement). Demand was decent at 2.066x bid-cover and average yield of 4.055% (high-low at 4.064-4.036%). WI levels had shown improvements from the day before, from around 4.08/05 heard early Monday. Sustained demand post-auction saw the 10y MGS at 4.03% by the close.

In Bangkok, yields inched moderately lower about 1bp across all tenors as players waited for Fed chairman's semi-annual monetary policy report to the House Financial Services Committee. Meanwhile, foreign investors were net buyers of Thai bonds despite the incoming congressional testimony. Bids on LB22DA prevented a rise above 1.825% and anticipated demand for the 5y benchmark including from inter banks and local funds should absorb LB22DA smoothly with less long-tail risk.

IndoGBs was stable ahead of Tuesday's auction though flows were pretty low. Incoming bids in the auction reached above IDR40t although this was the lowest incoming bids so far this year. However, post-auction bonds weakened as the government decided to upsize the issuance to IDR23.1t  from IDR17t target, and in the process issued 5y papers at long tail (cut-off at 5.90%, bid-to-cover ratio only 1.13x). The curve bear-flattened amid the auction with the 5y bond up 14bps, while the 10y/15y/20y rose +8/+3/+1bps. Volume eased to IDR22t while trade concentration shifted to the belly of the curve.

Asian dollar credits moved steady despite waiting for Powell's testimony, but boosted by overnight UST gains. The iTraxx Asia ex-Japan IG index narrowed by about 1bp Tuesday.


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