FW: CIMB Fixed Income Daily - 11 Jun - Treasuries moved little with Fed about to hike again

 

 

CIMB Fixed Income Daily - 11 Jun - Treasuries moved little with Fed about to hike again 

 

US Treasuries ended last Friday sideways in a tight range. Friday saw little movement intraday except along futures trading. Overwhelmingly, players were cautious ahead of FOMC in the coming week, whilst ECB could provide guidance for asset purchases going forward also this week. The G7 meet had little to move the market despite trade tensions brewing amongst members.

The US Federal Reserve is set to hike to 1.75-2.00% come the 14 June FOMC meeting. If so, that would be the second rate hike this year, and adds upward pressure on US and global yields. However, overall rise, in our opinion, will be capped as players will continue to doubt global growth prospects. There’s an ongoing debate whether the Fed may indeed hike four times this year. As growth and inflation suggest further normalization of interest rates by the Fed, the risk is one too many hikes. Bond markets may be suggesting a fourth hike may not be warranted unless growth shows sturdier increases than currently. On top of that, there is ever increasing risk to global growth, which revolves around trade (US versus China and NAFTA partners) and geopolitics such as the US-North Korea talks, the Middle East and domestic politics in Europe (Italy & Brexit).

Malaysian government bonds saw a slight slant towards weakness though select papers still showed gains on Friday. We noted the new 20y MGS (MGS 06/38) barely changed at 4.89% or near its auction average. Sentiment was guarded amid rising emerging market (EM) concerns and fears of rising interest rates. Some global central banks were either on tightening path (such as ECB’s aim to taper asset purchases and Turkey’s and Indonesia’s continued rate hike rhetoric) or questioning Fed’s hikes (India’s central bank governor writing in the FT). Meanwhile, Turkey’s central bank raised its policy rates again by 125bps to 17.75%, its third increase in 2 months, as tries to tame inflation and stabilize its currency. Turkey’s inflation hit 12.15% in May. Bank Indonesia raised rates twice last month. Meanwhile, the US Federal Reserve is set to hike to 1.75-2.00% come the 14 June FOMC meeting.

In Thailand, front-ends continued to outperform Friday with yield declining about 1bps for LB-19 series due to support from onshore and offshore players. Meantime, bellies and long-ends were little changed and traded in narrow ranges as investors awaited outcome of G7 meeting on 9 June, Trump-Kim summit on 12 June, and the FOMC meeting on 12-13 June. Unlike Thailand SET Index, risk-off sentiment has not spilled into Thai bonds as local liquidity remains high and front-end supply light.

IndoGBs were quiet last Friday ahead of the week long break. Trades were concentrated on tenors 10y or shorter, though there was pressure as some players went for position trimming before the long holiday.

CIMB Treasury & Markets Research-Fixed Income

Tel: +603 2261 8557 | Fax: +603 2261 8705 

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