Tuesday, April 17, 2018

FW: CIMB Fixed Income Daily - 17 Apr 2018 - Geopolitical risks ebb, lifting US yields modestly higher



CIMB Fixed Income Daily - 17 Apr 2018 - Geopolitical risks ebb, lifting US yields modestly higher


US Treasuries closed little changed with only some reversal from recent safe haven flows which had come on the back of US attack in Syria. Concerns on geopolitics ebbed as there had been little signs of escalation of military action on the part of Russia. Treasuries also were pressured by stronger-than-expected retail sales, which rose 0.6% mom in March against 0.4% consensus and 0.1% decline in February. Total business inventories rose 0.6% in February, meeting expectation, compared with same 0.6% in January.


Aside, New York Fed president said in an interview that the Fed’s expected 3-4 rate hikes this year is not an ‘unreasonable’ expectation. Further, know dove Minneapolis Fed president Kashkari said with fiscal stimulus in offing, the Fed has room to hike this year. Meanwhile, PBOC raised its 14d reverse repo rate from 2.65% to 2.70%. China had raised its 1w lending rate last month and 7d repo rate by 5bps to 2.55% on 22 March or right after Fed’s hike by 25bps to 1.50-1.75% range.


Malaysian government bonds were traded on thin volume (under RM1.0b for MGS+GII less than an hour before closing time) with sentiment guarded amid external headwinds.


There had been weakness along the 10y MGS (MGS Nov’27) as it touched 4.01%, but we also think flows will soon move into MGS Jun’28 (4.00% seen as support) which will be the new 10y benchmark come a reopening auction slated for next month.


This week we have the March 2018 CPI on tap. However, with consensus at still pretty low +1.6% yoy, we expect little impact on bonds. Also up is auction of MGS Apr’23. Amount up for tender could top RM4.0b seeing it will be new 5y benchmark. The current 5y MGS (MGS Mar’22) is around 3.60%. The new MGS Apr’23 should find demand at 3.70%.


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