FW: CIMB Fixed Income Monthly - Feb 2018 - Looking to Fed in March

 

 

US Treasuries

• Despite outlook for four rate hikes this year, we expect upside for UST yields to be capped in the near term period, in conjunction with safe haven demand. Short-term, we maintain outlook for a flat yield curve, led by support for mid-to-longer tenure papers. Targeting 2x10 spread as little as 60bps with 10T likely resistance at 2.90%, 2.95% and upwards to 3.10%. Policymakers are still eyeing for gradual tightening pace, which faded an inverted yield curve risk after it hit the bottom near 50bps.

Malaysia

• With UST retreating from February lows, MYR looking stable, and supportive macro data, MYR bonds should see support in the short term period. In our opinion, the buying interest may persist at the bellies of the curve, buoyed by anticipation of no rush in rate hikes by BNM. Technically, we see 10y MGS supported at 4.07%, with potential upside to 3.90%.

Indonesia

• While sentiment remains cautious ahead of FOMC on 21 March, we think that domestic bonds will be supported by Bloomberg-Barclays indices inclusion as well as softer inflationary pressures. In our opinion, the 10y benchmark will be in 6.50-6.75% range for the month of March. Apart from that, we expect BI to maintain the 7d RRR at 4.25% at the March meeting due to tightened spread against inflation.

Thailand

• Looking towards month-end, we see risk of steeper curve amid a possible Fed rate hike plus potential upgrade in US economic forecasts at the March FOMC. We also see drivers from improvements in Thailand's economic growth outlook and ahead of anticipated bond switching programs.  The 5x10 spread could widen to 72bps or the widest since 6 Feb 2018 and before that on 15 Nov 2010. Meantime, front-end govvies will be stable from supportive factors of adequate liquidity and expected steady policy rate at 1.50%.

Best Regards,
CIMB Treasury & Markets Research-Fixed Income
Tel: +603 2261 8557 | Fax: +603 2261 8705
www.cimb.com
Find us on Bloomberg at CIMR <Go>

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