CIMB THB Monthly Fixed Income Commentary for July 2014

Attached is the monthly market commentary for July 2014. We have included some near term market outlook for the month of August 2014.

Synopsis

• Foreign support for Thai bonds was noted in July as the political scenario improved and boosted Thailand’s economic outlook. The Bank of Thailand sees 2H2014 GDP growth at 3‐4% (versus 3.4-3.5% in an earlier forecast) and 2015 growth at 5.5%. However, end month profit taking pressure pared the gains along the Thai govvies market. In addition, sentiment was also impaired as investors took a cautious stance ahead of the MPC meeting on August 6.

Outlook

• Despite the accommodative policy, bond yields may come under mild upward pressure in the coming month, mostly due to profit taking pressure, in our opinion, as there is no more support coming from potential rate cuts in the foreseeable future.
• We expect Thai government bond yields to show further upward trend later in 2H2014. We can already see the trend with rising IRS rates which is help bringing the bond-swap spreads wider (though still in negative territory). Currently, the 3-year bond is hovering around near 2.60% (versus 2.50% a couple of weeks ago) whilst the 10-year bond is around 3.70%, as yields had risen steadily back to levels seen at the start of the year. Our year-end projection for the 3-year bonds is 2.75% and 10-year bond around 4.00% and further towards 3.00-3.25% and 4.35% respectively in 2015. We think demand for the safe haven government bond will peter out further the rest of the year, with players pricing in the improved economic outlook.