Monday, May 7, 2018

FW: CIMB Fixed Income Daily - 07 May 2018 - Regional bonds aided by lower UST yields



CIMB Fixed Income Daily - 07 May 2018 - Regional bonds aided by lower UST yields


US Treasuries ended last Friday on a flat note The market was supported early with April non-farm payrolls up 164k which is below consensus of 193k but the prior month's number was revised up to +135k from +103k prior estimate. Meanwhile, the unemployment rate fell to 3.9% which was the lowest since December 2000 and aided impetus for further Fed tightening this year. Profit taking action came in later in the day and resulted in the flat finish for UST. Also pressuring UST was incoming supply ‑ $31b sale of 3T scheduled for Tuesday followed by $25b sale of 10T Wednesday and later Thursday $17b sale of 30T.


Malaysia's government bonds closed firmer, after overnight UST firm movement and steady Ringgit. Yields fell about 5bps across most government papers on Friday with volume pretty heavy at RM2.3b. Release of firm trade numbers aided local sentiment as well. Malaysia's gross exports eked out a 2.2% yoy gain in March (versus CIMB expectation of +2.6% yoy, Bloomberg consensus: +2.0% yoy; whilst February number was -2.0% yoy). Malaysia also recorded its largest trade surplus since September 2008 at RM14.7b in March 2018, but that meant the fall in gross imports was steeper than expected at -9.6% yoy (CIMB: -4.3% yoy, Bloomberg consensus: -3.2% yoy, Feb: -2.8% yoy).


Meantime, the RM3.0b auction of new 15y MGS (MGS Nov'33) to replace MGS Apr'33 as next benchmark, saw positive result. Bid-to-cover ratio came at 2.722x or bids amounting to RM8.17b. Total bids was 255 which is a relatively high number. The average yield was 4.642% compared with high yield 4.653% and low yield 4.620%.


Eyeing moderate demand in short term. Near the average level of 4.62% currently, makes the latest 10x15 bond spread about 51bps. In contrast, the 10x15 spread had average about 46bps in the past year. Consequently, we expect further though moderate demand for new 15y MGS in very short term period, probably seeing support till 10x15 spread around 46-48bbps.


Thai bond yields fell about 1-2bps across all tenors, in line with lower UST yields. The auction of 14d BoT bonds received firm demand at 2.04 bid-to-cover ratio and lower average auctioned yield 1.1397%; declining from previous auction of 13d BoT bond at 1.1523% average yield on 27 April. Current bond buying interest looks to benefit the auction of LB326A on 9 May.


Trading of IndoGBs was quiet throughout the day. Most of the trading interest was on the shorter tenors (up to 3y). Overall, yields moved little compared to closing the day before. Volume increased to IDR22.3t whilst trade concentration shifted to the tail end of the curve.



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