FW: CIMB Market Musings - 29 Mar 2018 - 3y MGS auction

 

 

3y MGS auction: Demand not up to scratch

Demand not up to scratch. Demand at the auction of MGS Nov'21, which is a reopening though it will morph into the new 3y benchmark, was merely decent. Pre-existing amount of RM7.0b before auction of another RM3.0b worked against this auction, placing some supply risk on the new issue. Meanwhile, there are MGS Jul'21 (RM13.5b outstanding), MGS Sep'21 (RM11.7b), and MGS Mar'22 (RM8.0b) to contend with. Also, the pre-existing 3y MGS (MGS Feb'21) has another RM3.5b outstanding. Bid-cover at the auction was 1.722x and average yields was 3.451% at high-low range 3.464-3.439%.

Short-tenor MGS still supported. 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 near 3.45% remain an attractive entry point, as we see short-term resistance at 3.40%.

That's it for supply till September. 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.


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