15y GII 06/33 issued at 4.794%. We saw the reissuance of the 15y GII 06/33 which saw a bid-to-cover (BTC) ratio of 2.783x. This tender had a large tender amount of RM3.5bn, comparable to the previous tender for the 15y GII in March.
Yields traded higher reflecting the recent shift up in the yield curve. The fall in the MGS and the MYR has taken its toll on the yield curve, pushing up rates across the board. The average yield of this auction was at 4.778%. This compared to the previously traded yield of 4.724% for the security. The spread of the 15y GII will now sits at 45bps above that of the 10y GII. (It is currently 40bps for the conventional spread).
Investment opportunities reveal demand from investors. The current auction occurs in a period of lengthened risk sell down globally, further precipitated by concerns on a deterioration in the tariff battles currently playing out between the US and China. Despite these ongoing concerns, this auction saw a strong BTC of 2.78x, a level stronger than the 1.996x BTC seen in the March tender of a similar tenure. This could be signaling a pent up in demand among domestic investors especially considering the lackluster primaries in the local currency debt market. We would look forward to the upcoming 30y MGS to further reveal investor appetites especially in the longer end of the yield curve.
We remain upbeat on the MGS as a whole. The recent global volatility in yields and the rise in the USD have continued to remain a point of concern for investors in the region. The Malaysia’s CPI was reported within expectations at 1.8% yoy (1.5% mom) for the month of May on the back of pre-election spending and on the Ramadhan period. Expectations still remain of a reduction in the yoy CPI especially in light of the cancellation of the GST and its replacement with the SST on September. We remain upbeat on the MGS in the medium to long term (see our CIMB Fixed Income Navigator - 3Q 2018 - The Yield Direction Is Not As Simple As “Up” dated 19 June 2018), and maintain expectation for 10y MGS to move to 4.10% by 3Q2018.
CIMB Treasury & Markets Research-Fixed Income
Tel: +603 2261 8557
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