FW: CIMB Fixed Income Daily - 05 Mar 2018 - Treasuries down as trade conflict fears spur inflationary concerns

 

 

Treasuries down as trade conflict fears spur inflationary concerns

UST yield curve bear steepened, led by expectation over higher inflationary pressure driven, by potential global trade conflicts, and we expect volatility to sustain in the short term period. While US plans to impose tariffs on steel and aluminum imports, bond players will also eye key data this week including February NFP, ISM services and factory orders.

MYR government bond market saw decent support tracking UST gains, while IRS curve inched lower by around 1bp last Friday. Looking ahead of MPC this week, consensus and CIMB economist's view is that the central bank will stand pat on interest rates this time around – especially after the recent rate hike in January and ease in inflationary pressures. CPI inflation for January 2018 +2.7% yoy versus +2.8% consensus and December's actual +3.5% whilst core inflation held steady at 2.2%.

External sentiment and inflation underpinned demand for Thai govvies led by solid demand at front-end central bank bills to 9y LB26DA. Thai inflation remained subdued in February as headline CPI rose 0.42% yoy - lower than the market estimate at 0.70% yoy - and core CPI picked up 0.63% yoy, or slightly better than the estimate of  0.6% yoy. Looking ahead, we see upside risk in yields due to expectation of Fed rate hike in March, steeper curve from improving Thailand growth outlook, and anticipated bond switching programs.

IndoGB surprisingly saw muted reaction from Trump's trade war threat. Most of the activities came from local investors, showing net buying interest in 15-20y space. Meanwhile offshore players were seen mostly in very short dated bills, where selling action in bills tenured 3m and less. Market volume continued to fall to IDR16.9t while trade concentration shifted to the belly and the tail of the curve.

Asian dollar credits strengthened last Friday, as sentiment was boosted by flows for safer haven assets amid fears over potential trade conflict. In the primary market, Bank of China HK priced its 3 and 5y floating rate notes at 75 and 85bps above 3m Libor, while the 10y fixed rate tranche was issued at T+125bps. Upcoming new issuers include Tewoo Group and Jiangsu NewHeadline Development Group.

CIMB Treasury & Markets Research-Fixed Income
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