FW: RHB FIC Rates & FX Market Update - 21/2/18

 

 

 

 

21 February 2018

 

 

Rates & FX Market Update

 

 

Yields Rose after Lower Bid-to-Cover Seen in 2y Auction

 

Highlights

 

¨    Global Markets: Bond traders were welcomed back with an avalanche of US Treasury auctions - USD151bn of various T-Bills and USD28bn of 2y Note - amid rising oversupply worries. Bid-to-cover ratios fell, e.g. 2.72 vs 3.22 in January for the 2y auction, and yields continue to rise across the curve (2y +2.9bps and 10y +1.5bps) although Treasuries pared some losses post auctions. The broad USD concurrently rose against majors (DXY +0.57%) and Asian currencies (+0.20%). This can be partly attributed to the rising yields but also to the drop on US stock markets (S&P500 - c.0.77%), and a declining Euro. The Zew Survey Expectations disappointed (29.3 vs 31.8 in January) while in Germany SPD members voted on the coalition deal, a result only known on March 4^th, day of the Italian elections, which could temporarily revive the political risk.

¨    AxJ Markets: Over in Indonesia, the government is pushing to exempt VC funds investing in start-ups or SMEs from corporate taxes, as well as to seek tax cuts for SMEs amounting to 0.5% (previously 1%). Finance Minister Sri Mulyani vowed to offer a more competitive tax code within the region in order to drive innovation and R&D activities, and we continue to believe that the Indonesian government remains committed towards economic reforms ahead of the 2019 election; stay neutral IDR at current levels.

¨    The MYR was c.0.3% weaker against the USD overnight as the DXY climbed c.0.6% over the same period. Moody’s voiced concerns over Malaysia’s elevated system-wide leverage, including in the household sector, even as other areas of the economy remains healthy (robust growth, diversified economic sectors, and favourable debt structure). We do not think Malaysia will be under severe rating pressures over the near to medium term as the country remains committed towards further fiscal consolidation, despite the slower-than-expected pace. While we remain mildly positive towards the currency, Malaysia remains vulnerable to capital outflows, particularly on any surge in global markets’ volatility.