FW: CIMB Fixed Income Daily - 30 Mar 2018 - US Treasuries continue to strengthen / Softer-than-expected MGS auction

 

 

CIMB Fixed Income Daily - 30 Mar 2018 - US Treasuries continue to strengthen / Softer-than-expected MGS auction

US Treasuries continued to strengthen with yields down 3-4bps and 10T now at 2.74%. With 2T at 2.26% the 2x10 spread is tighter at 48bps. The US market closed early Thursday and will remain closed for Good Friday. In macro data releases, US consumer spending rose 0.2% in February, meeting consensus, whilst core PCE rose 0.2% in Feb also meeting consensus. Geopolitics remains a concern. Russian Foreign Minister said Russia will expel 60 US diplomats and orders closure of the US consulate in St Petersburg. Targeting some normalization in 2x10 towards 53bps in short term period.
Malaysian sovereign bond market was quiet with flows led by the 3y MGS. The RM3b 3y MGS reopening auction saw softer-than-expected demand with 1.722x btc and average yield of 3.451%. Post auction, it was traded within 3.44-3.46% before settling at 3.46%. Expect activities to remain subdued apart from portfolio rebalancing ahead of the weekend.

We think continued upbeat outlook for short tenor bonds in general, in view of firm MYR and low inflation environment bringing Bank Negara unlikely to tighten anytime soon, should push for more flows into the new 3y proxy. We think current levels above 3.45% remain an attractive entry point. Aside, there aren't any more 3y MGS auction this year, and new issue of 3y GII is scheduled for September 2018 plus a reopening due for December.

In Bangkok, trading activities were active at the back of the curve. The long-end yields corrected lower about 2bps with buying interest by local clients indicating some players may not participate next week's bond switching program as long-term bond outperformed on Thursday.

IndoGB extended gains again on the back of sustained offshore inflows. Bids came on the back recent offshore buying interest and short covering. On Thursday, offshore interest came on 7-20y tenors. Added interest came from local real moneys and banks. Yields fell about 9bps on average. Trade flows halved to IDR22.8t and concentrated on longer tenor bonds.

CIMB Treasury & Markets Research-Fixed Income
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