CIMB MYR Weekly Fixed Income Commentary for 19 Sep 2014

Market Roundup

• The Malaysian government bond market was less active over the week, as players remained sidelined heading towards the Monetary Policy Committee (MPC) meeting on September 18. Meanwhile, the yield curve steepened as the short dated papers were well bid after the MPC meeting.
• We saw thin buying activities in the corporate bond market over the week, which sent the yields a tad lower. While credit spreads along AAA papers remained thin, the upside along the AAA curve may be limited. However we think that corporate bonds are likely to be supported in the near term, especially with the improved sentiment post-MPC meeting. At this juncture, we still see relative values in some laggards which include TNB WE tranches.
• US Treasury yield curve ended steeper on week-on-week basis, led by positive buying sentiment post mid-week FOMC meeting. We saw a quick turnaround on Friday, in which the long dated US Treasuries were well absorbed by the market.
• Asian dollar credits moved in narrower range last week, amid cautious sentiment. Despite that, PBoC was reported to allocate a sum of $81 billion worth of liquidity into five domestic banks, which boosted the trading activities in the quiet market before the FOMC meeting. While the Fed kept its neutral tone on the policy stance, we saw heavier buying flows supported the market, and eventually recovered some earlier week losses.
• US dollar traded firmer before the mid-week FOMC meeting, as market was anticipating less-dovish statement from the Federal Reserve. However, US dollar retreated slightly on the back of profit taking activities heading towards weekend. EUR/USD fell from 1.2916 and reached 1.2841 on Friday. USD/JPY trended higher to 108.97, in contrast to 107.13 a week ago, due to the concern of weaker economic outlook in Japan.