CIMB Daily Fixed Income Commentary - 21 January 2015

Good Morning,

Market Roundup

• US Treasuries firmed with the yield curve flattening on Tuesday, ahead of ECB meeting where the central bank is anticipated to announce monetary stimulus especially an asset buying program. Meantime, China reported GDP growth of 7.3% yoy in 2014 just ahead of earlier consensus of 7.2%. However, qoq numbers showed smaller growth of 1.5% in 4Q2014 against consensus growth of 1.7% and the previous month’s 1.9%.
• USD/MYR rose sharply from 3.5660 to above 3.6100 during mid-day, before settled lower near 3.6090 late Tuesday. The ringgit is hovering near a 6-yer low after Malaysia’ Prime Minister Najib revised upwards its budgeted fiscal deficit to GDP target from earlier 3.0% to 3.2% as the country grapples with the tumble in crude oil prices and risk to revenue generation (from oil-related earnings).
• Malaysian sovereign bonds dealt weaker, after the Fitch commented that it may ‘likely than not’ to downgrade the sovereign credit rating in the first half review. Also, the credit rating agency viewed that the revised fiscal deficit target of 3.2% of GDP “revealed the sovereign credit weakness due to the dependence on commodities”. Asides, USD/MYR rose sharply from 3.5660 to above 3.6100 during mid-day, before settled lower near 3.6090 late Tuesday. Malaysia has set new and lower target of 4.5-5.5% GDP growth in 2015.
• Thai government bonds extended losses, triggered by persistent profit taking activities heading towards MPC meeting next week. On top of that, medium and long term papers were under heavier selling pressure, in anticipation of incoming supplies of ILB283A and LB25DA, which are expected to come at issuance sizes of Bt5 billion and Bt16 billion respectively. Aside, daily trading volume recovered to a decent sum of Bt22.0 billion, in contrast to Bt10.7 billion a day ago.
• Indonesia government bond market rallied on the back of offshore inflows caused by ECB stimulus plan expectation. Today was auction day, where MoF targeted 12T bond issuance and instead received overwhelming incoming bid, IDR 54.79T (highest all-time). Government upsized the issuance by 44%, issued (only) 17.3T of bonds, bid-to-cover ratio: 3.17x. Market did very aggressive buying on short covering after auction result came out. Total volume jumped to IDR 21.2 trillion from IDR 7.94 trillion on a week before. The most active bond in secondary market was FR68.
• Asian dollar credits were better supported, after China announced its 2014 full year GDP growth of 7.4%, marginally higher than consensus view of 7.3%. Despite the GDP growth came slightly lower than the authority’s target of 7.5%, market reacted positively with improved bidding interest along the Chinese IG names. CNOOC May’23 tightened by 3bps to 177bps, while Bank of China Jan’19 traded 1bp tighter to 131bps.