FW: CIMB Fixed Income Daily - 19 Mar 2018 - Markets await Fed’s guidance, hike widely anticipated

 

 

CIMB Fixed Income Daily - 19 Mar 2018 - Markets await Fed's guidance, hike widely anticipated

UST started off the day on slightly firmer footing, but gains were eventually reversed alongside firm economic data. Industrial production rose 1.1% in Feb though Jan's was revised down to -0.3%. Housing starts rose 1.236m in Feb and Jan's was revised up to 1.329m. There was also repositioning ahead of FOMC on 21 March. While markets widely anticipate Fed to hike this time around, in line with current policymakers' forward guidance, focus will be on the shift in Fed stance instead of the rate hike decision. Treasuries remain supported amid the current risk-averse sentiment, but we think will eventually be weighed by prospects of solid progress in growth, inflation, rate hikes and bond supply in the US. Hence, our forecast for 10T is 3.00% by 2Q18, 3.10% by 3Q18, and 3.20% by 4Q18.

Malaysian sovereign bonds closed mixed, taking a breather on Friday. Flows may shrink approaching FOMC, with slant towards consolidation within narrow ranges. In addition, upcoming catalyst will be Feb CPI this week, where consensus sees it to moderate further to 2.0% from 2.7% in Jan. This should boost MYR bonds in the short- to medium-term horizon. On the other hand, we expect an issue size of RM2.0b for public tender in the upcoming 15y GII reopening auction.

In Thailand, bonds were traded actively in the morning session as BoT open market operations (OMO) bought 4-14y LB series and short-dated BoT bonds. Submitted amount was Bt20b but the BoT absorbed Bt16.1b, indicating pent-up selling pressure among players. After outright purchases by BoT OMO, activities turned muted and yields across the curve saw small fluctuations at less than 1bp as there was no key macro data released before upcoming FOMC.  

IndoGBs barely budged coming from support near current levels, paring prior day's losses from amid external pressure particularly with upcoming FOMC this week.

Asian dollar credits were little changed ahead of the weekend. Among the primary offerings, RECL priced 10y bond at T+200bps, 15bps tighter than guidance. Asciano Finance was reportedly launching 10y papers at 205bps above UST. Primary market is expected to see thinner flows approaching FOMC meeting.


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