FW: CIMB Fixed Income Monthly - Jan 2018 - UST selloff weighed on sentiment

 

 

US Treasuries

• Expect pressure to persist. The UST selloff may take a short term breather with yields heading towards immediate technical resistances. The 2T yield continued leading Fed Funds Rate (upper bound) with a wider spread of 67bps, way above the median 26bps over the last 5 years, and near to the peak 71bps registered in Dec 2015. We reckon that the sharp movement may ease in the near term period, to normalize before eventually trending higher again on the back of anticipation of more hawkish Fed stance and growing budget deficit. Our 2T and 10T targets are 2.25% and 2.80% for 1Q18.

Malaysia.

• Not expecting major selloff despite the rate hike. Malaysian sovereign bonds were generally well-supported despite Bank Negara raising the OPR by 25bps. However, we do not see much upside from current levels, as further selloff in UST may eventually weigh on MYR bonds. On top of that, MYR bonds took a breather from further strengthening despite USD/MYR dipping below 3.90 late Jan. We expect market consolidation to continue, with 10y MGS trading within range of 3.85-3.95% in the coming weeks.

Thailand

• Bearish bond outlook in longer term: Waned effect from the high base in food prices and stable energy prices along with higher nation-wide minimum wage from Apr will increase inflationary pressures in 2018   and we expect Thai CPI will increase toward the BoT target of 1.00%. Moreover, yield-seeking behavior will increase pressure on Thai GBs as UST yields stay firm  above Thai government bond yields.

Indonesia

• Weak sentiment likely to persist. Despite the positive catalysts from international rating agency upgrades, and low inflationary environment, IDR bonds are likely to see pressure amid weakening UST. In addition, bond market may see greater net foreign selling on recent IDR weakness.

Best Regards,
CIMB Treasury & Markets Research-Fixed Income
Tel: +603 2261 8557 | Fax: +603 2261 8705
www.cimb.com
Find us on Bloomberg at CIMR <Go>

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