FW: RHB FIC Rates & FX Market Update - 12/9/14

12 September 2014

Rates & FX Market Update

Peripheral EU Bonds Extended Decline on Waning Optimism from ECB Stimulus; BoK & BI Held Rates while BSP Hiked 25Bps

Highlights

¨    Global markets remained weak overnight amid a choppy trading session; US jobless claims edged 11k higher to 315k but failed to bolster any strong demand for USTs as investors recognized the improving labour market trend; demand for the 30y UST reopening was healthy at 2.67x BTC (previous: 2.61x) albeit a smaller issue size. In Europe, government bond yields rose in unison following the subdued German inflation which remained at 0.8% y-o-y; core-peripheral govies spreads continued to widen post-ECB meeting as the initial euphoria begins to fade following signals from ECB that the additional QE may not be extended to distressed member states, while concerns on Scottish independence continues to fuel worries for Catalonia independence.  On currencies, AUD marked the biggest overnight mover, hitting fresh lows of 0.9088 yesterday on short coverings following the weaker employment number.

¨    In Asia, BoK and BI held rates while BSP hiked rates by 25bps, in line with expectations, in an attempt to contain the surging inflation. Aside, South Korean’s Finance Minister Choi has announced for FY15’s budget to be increased by 5.7% y-o-y with additional details released on 16 Sep. Long dated KTBs traded softer while KRW remained weak, inching towards August’s low of 1041/USD recorded after BoK’s 25bps cut. In Indonesia, Jokowi’s new cabinet pending next week’s announcement is expected to retain all existing 34 ministries but reduce deputy minister positions, where we opine should continue to support short term optimism.

¨    PHP gained 0.35% against the USD overnight following BSP’s decision to raise the overnight borrowing rate and the special deposit accounts by 25bps to 4.0% and 2.5%. 2014 and 2015’s inflation forecasts were also raised to 4.5% and 3.8% where persistently sticky inflation could see another 25bps hike. The USDPHP pair is expected to trend higher and test June’s high