Tuesday, May 22, 2018

FW: CIMB Fixed Income Daily - 22 May 2018 - Solid 1Q Thai GDP but bonds fell



US Treasuries continued weakening amid increased risk appetite amid growth confidence and lessened worries on the US-China trade front after Mnuchin said the trade war between the two countries is ‘on hold’. However, longer tenors showed muted strength; this is because less worries of higher tariffs meant pressure on inflation will be less. There was also pressure on the short tenor as players await $33b auction of the 2T today.


Malaysian government bonds closed mostly mixed amid some cautious sentiment. However, we also noted a large focus of flows was slanted along a couple of 2018 maturities being MGS Sep’18 and GII Nov’18. Both saw demand at 3.327% (-12bps) and 3.398% (-26bps) respectively.


Aside, the central unveiled details for the upcoming reopening of 10y MGS Jun’28. Amount up for sale is RM3.5b with tender closing set for Wednesday 23 May. Quotes for MGS Jun’28 (current outstanding RM5.0b) were around 4.22% on the bid-side. We expect domestic demand to shift into the new supply from MGS Nov’27 (outstanding RM14.5b).


In Thailand, solid GDP growth number for 1Q18 at +4.8% yoy resulted in net selling activity in Thai bonds (but demand for Thai stocks). Bonds ended with steep declines started by selling pressure on LB26DA as it is exposed to supply risk ahead of auction this Wednesday. Bids for LB26DA climbed 9bps and led yield rallying by 6-9bps in the intermediate segment of 8-14y. Other front-end and back-end yields rose by 2-4bps.


Thai GDP grew 4.8% yoy in 1Q18 and which exceeded earlier market consensus of +4.0% and the prior 4Q17 growth of +4.0%. The 1Q18 growth was also the strongest in five years since the +5.4% growth recorded in 1Q13. However, economists note that domestic spending remain on the weaker side, thereby BoT remains little pressured to move interest rates.


Indonesia’s government bonds were traded weaker on Monday with the downward trend triggered by US dollar strength as USDIDR reached 14205. We noted FR64 was supported at 7.42% but this was not able to sustain as the series rose 7.45% towards closing time.


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