FW: CIMB Fixed Income Daily - 28 Mar 2018 - UST rallies on continued safe haven demand / BoT set to hold

 

 

CIMB Fixed Income Daily - 28 Mar 2018 - UST rallies on continued safe haven demand / BoT set to hold

UST rallied amid continued safe haven demand in the face of potential US-China trade conflict. Meantime, the US Conference Board consumer confidence index fell to a reading of 127.7 in March from a downwardly revised 130.0 reading (from 130.8) in February (which was the highest level since 2000). Elsewhere, Cleveland Fed president Loretta Mester reckons the Fed should continue to tighten, and that uncertainty triggered by trade tensions "may not be resolved quickly". Meantime, the $35b 5T auction was well-received with 2.50x btc, in contrast to average 2.47x btc garnered in previous 12 similar auctions. High yield was 2.612%, above WI 2.609%, while indirect bidders accounted for 63.5% of the sales.

Malaysian sovereign bond market remained quiet on Tuesday. Secondary trading saw net buying interest, aided by improved sentiment with USD/MYR dipping below 3.8800. The 3y MGS reopening auction was announced with an issue size of RM3.0b, in line with our expectation. WI was last heard at 3.45/43%. Tender closes Thursday. The 3y MGS was unchanged at 3.40%. Pretty light tender size with stronger UST and MYR levels should support demand for the auction - support seen around 3.45%.

Thai bond yield curve bear steepened led by losses at the back-end after the PDMO officially announced destination bonds. Bidding yields of the two destination bonds, LB316A and LB326A, rose by 4bps and 7bps respectively and caused LB366A up by 2bps. Foreign investors continued to buy Thai bonds especially at the front-ends due to the likelihood of status quo in MPC meeting and attractive offshore USD/THB forward point. We expect the MPC to maintain interest rate at 1.50% alongside view on gradual rise in inflation, while stance will remain accommodative policy to support sustainable economic expansion. At the same time, the MPC will protect financial stability and closely monitor high yield seeking behavior and development in geopolitical risk especially at trade war tension. This should send a clear signal of steady policy rate in 2018 and investors will remain at the front of the curve.

IndoGB market saw improved sentiment amid auction day on Tuesday though activities were generally quiet in the morning session. Market was more biddish as yields went down by 3-4bps. Most activities were concentrated on benchmark series with FR65 where the 15y tenor bond strengthened the most as MoF canceled the issuance of FR65. Incoming bid was IDR35.57t and MoF upsized the issuance to IDR20.7t from IDR17t target. Market volume decreased to IDR22.7t and still dominated by long term bonds.


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