Friday, April 13, 2018

FW: CIMB Fixed Income Daily - 13 Apr 2018 - Concerns over US next strategy in Syria cause mixed movements in bonds / Moody?s raises Indonesia?s rating



CIMB Fixed Income Daily - 12 Apr 2018 - Concerns over US next strategy in Syria cause mixed movements in bonds / Moody’s raises Indonesia’s rating


US Treasuries ended with losses after a steady start amid concerns the US was planning to strike on Syria, and by extension going against Russia’s interests in the middle east. However, Trump said the US has not decided on whether as yet to strike though he also said a decision will be made ‘fairly soon’. French president Macron said he has ‘proof’ that the Syrian government had used chemical weapons. Meantime, the US Treasury Department sold $13bn of the 30T which after the relatively strong auction supported the overall UST market. The auction saw high yield of 3.044% against 2.915% average past 12 30T auctions, at btc 2.41x versus 2.35x prior 12 auctions.


In Malaysia, the RM2.5b reopening auction of 20y GII saw fairly strong demand at bid-cover of 2.12 times for the RM2.5b tender. Average yield was 4.804%. To compare, the latest auction was better than last January’s RM2.0b reopening auction of the 20y MGS which saw 1.91 times bid-cover at 1.905% average yield. We expect short term demand to come in for the 20y GII seeing the 4.804% average yield, which is >20bps over the 20y MGS.


Aside, the market weakened in general, amid ongoing US versus China trade war fears. In addition, we think short term focus will also turn towards the US-Russia related Syrian geopolitical conflict. Also, amid the auction of 20y GII and less safe haven demand, we noted some duration shortening along the MGS market marked by 10y MGS up 3bps.


Thailand’s government bond curve flattened further with yields lower by 2-5bps across the 13-20y tenors. LB316A, LB326A, and LB366A outperformed and led gains along the longer-tenor Thai govvies before the local market closes for the new year holidays. Net selling momentum by foreign investors along the front-end was extended on Thursday, and possibly due to profit taking as USD/THB neared lows 31.10 at the market open.


In Indonesia, government bonds weakened on the back of possible US missiles attacks on Syria, as well as ongoing US-China trade concerns. Curve rose by 4bps although support was still seen from local players as they seemed keen along the 10-20y tenors. Yields generally moved 2-5bps higher on the day.


On a brighter note, Moody’s has upgraded Indonesia’s sovereign rating to Baa2 from Baa3 and the outlook is changed to stable from positive. Moody’s indicated the latest action is aided by Indonesia’s credible and effective policies which support macro stability, citing buildup of financial buffers, and prudent fiscal and monetary policies. Moody’s also raised Indonesia’s long term foreign currency bond ceiling to A3 from Baa2.


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