FW: CIMB Fixed Income Daily - 29 Mar 2018 - TH yields up after policy decision / Expecting firm demand at 3y MGS auction

 

 

CIMB Fixed Income Daily - 28 Mar 2018 - TH yields up after policy decision / Expecting firm demand at 3y MGS auction

US Treasuries continued to show strength amid safe haven bids, but follow through support were little found after recent gains, whilst there was relatively weak demand at auction of the 7T worth $29b. Yields along the tenor having declined to below 2.70% from high around 2.85% over a week ago contributed to the weak demand (reflected by 2.34x btc against 2.54x average at 12 prior auctions of the 7T). High yield was 2.720% at the auction compared with 2.241% average prior 12 auctions.

The third estimate of 4Q GDP was revised higher to annualized growth of 2.9% from 2.5% second estimate. Revised higher were personal consumption expenditures and private inventory investment. The GDP deflator was unchanged at 2.3%.

Ringgit-denominated bonds were little changed despite short-lived intraday demand on firmer MYR in the morning session. Meanwhile, WI for the 3y MGS was quoted at 3.44/42% this morning, while technically we anticipate buying interest to emerge near 3.45%. As we think the central bank will not be raising rates this year amid subdued inflationary pressures, a wider spread of 3y MGS against OPR (currently near to median 97bps over the past 1-year period) is not warranted. Bank Negara expects GDP to expand by 5.5-6.0% this year, higher than 5.0-5.5% growth projected earlier.

Thai bond yields rose across the curve from bond switching effect and hawkish outcome of MPC meeting. The MPC kept rate unchanged at 1.50%, but market was surprised by one vote for a rate hike with objective to protect financial stability. The member viewed prolonged periods of low interest rates will lead to underestimation of potential change in financial condition, and increasing interest rates would not hinder economic growth going forward. The lack of a unanimous decision to keep rates at 1.50% increases market bet on a rate hike in 2018. There were profit-taking flows on front-end LB198A and source bonds-LB19DA, and LB206A along with selling pressures on destination bonds LB22DA, LB316A, and LB326A. The yield curve remained steep as the 11y and longer dated securities edged higher by 2bps.

A positive day in IndoGB on Wednesday on the back of offshore inflows. Net buying interest was seen from mid to long ends. We think local real moneys followed suit, while banks initially appeared on the offer side. Volume near doubled to IDR39.7t.

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