Wednesday, July 25, 2018

FW: CIMB Fixed Income Daily - 25 Jul 2018 - Regional bonds steady despite concerns over higher global rates

 

 

US Treasuries posted gains, but only backtracking part of prior day’s loss. There was demand after the steady auction of 2T. The auction showed bid-cover at 2.92x against 2.82x average cover at 12 prior 2T auctions. High yield was 2.657% and indirect bidders were slightly lower at 45.0% (45.9% average at previous 12 2T auctions).

 

UST had followed loss in JGBs earlier this week amid news Bank of Japan was mulling less accommodative monetary policy stance, to take more ‘sustainable’ measures to fight stubbornly low inflation into the medium to longer term. BoJ policy meeting is scheduled for next week. Meantime US existing home sales fell 0.6% mom in Jun to 5.38m versus downward revised 5.41m sales the month before.

 

IndoGBs were dealt weaker Tuesday whilst global bond yields rose. However, there was support on bargain hunting interest, mostly by local players. As for the sharia auction, the government received a lack of demand, at IDR9.9t incoming bids, and it only issued IDR4.81t against IDR6t target. Market volume continued to decrease to IDR10.2t whilst trade concentration was evenly distributed across the curve.

 

Thai govvies consolidated within 1-2bps amid mixed trading interest. Front-ends gained after the auction of 3m- and 6m- Central Bank bills (CB) received firm demand at the average yields of 1.3151% and 1.496%, respectively or the lowest levels in this month's selling. Bellies (7y to 10Y segment) inched higher by 1-1.5bps due to net selling pressure among local financial institutions while long-ends with maturity longer than 17 years gained modestly at less than 1bp led by outperformed LB466A ( richer by -3bps) due to purchasing interest of foreign players. As there will be no auction of LB-series and global macro data appear light, we expect THB rate will somewhat stabilize and confined in a slight higher range this week.

 

On Tuesday, Malaysian government bonds moved sideways but mostly in range yield-wise. Volume traded was also heavy – especially along GII 10/28 (RM900m volume) as it closed pretty much unchanged at 4.21%. We think after recent rally in benchmark MGS, lagged demand is being felt in the GII segment and (also on non-benchmark MGS segment), especially amid a lack of new GG papers to feed the demand for yield pickup.

 

Ringgit bonds had been especially boosted after Bank Negara Malaysia recently held the Overnight Policy Rate (OPR) at 3.25% as mostly expected by the market. Indeed, as some in the market had also anticipated, the central bank took a turn in its stance as it sounded more on the dovish side this time around. Even as policymakers sounded positive on domestic growth, it cautioned of downside risk from the external environment. Policymakers also warned that inflation may trek lower this year especially as impact from ‘recent policy measures’ take influence – by which we infer to include the cut in the GST.

 

Lastly, there stable movements in Asian USD credits and regional Asian bond markets on Tuesday, as sentiment normalized after JGBs had weakened a day prior. Also, firm stock market performance especially in China also boosted risk appetite and ensured firm movements in Asia’s USD bonds. News reported Chinese authorities were targeting measures to support economic growth. This week PBOC were heard injecting $74b into the country’s banking system to boost liquidity. 

 

CIMB Treasury & Markets Research-Fixed Income

Tel: +603 2261 8557

Find us on Bloomberg at CIMR <Go>

 

 

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