US Treasuries rallied with yields now sub-2.80% amid fresh drive to safe havens. Meantime, USD strengthened with DXY approaching 95 reading or highest since last October. Main impetus for drive to safe havens was geopolitics with Italy’s president Mattarella objecting to finance minister designate whilst in Spain PM Rajoy faces a no-confidence vote. Also, the US said it intended to impose the 25% tariffs on Chinese imports by middle of June. Elsewhere, St Louis Fed president James Bullard said Fed should slow its pace of rate hikes, especially not faster beyond that of other central banks including BoJ and ECB.
Malaysian government bond market saw relatively thin trading last Monday ahead of a mid-week public holiday. Amid a lack of fresh interest, flows were heavier along the front of the yield curve. Yields were mixed but the heavier flows on the day were along MGS Mar’19 which shed 4bps to 3.35% and MGS Sep’21 which fell 10bps to 3.81%. Bargain hunting interest came in to play especially after UST had gained last Friday (10T had dived to 2.93%).
To look forward today is tender for the 5.5y GII (GII Nov’23 amounting to RM4.0b). We had earlier anticipated that the auction may not garner very strong demand, considering the generally weak sentiment in the market at the time, as well as relatively large tender amount. However, we noted some late but mild demand for the new supply with WI taken at 4.095% on Monday this week, in contrast to WI last Friday around 4.10/00%. Hence, though we still don’t expect stellar demand for the auction, we hope to see more late demand before tender closes. Also, overnight UST rally should aid sentiment as well.
In Jakarta on Monday, IndoGBs gained amid USD weakness (USDIDR briefly broke below 14,000) and thin fresh supply looked thin. We suspected foreign onshore banks were behind the net buying action. Overnight UST gains should support IndoGBs but BI meeting is today with risk of a rate hike.
CIMB Treasury & Markets Research-Fixed Income
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