CIMB Daily Fixed Income Commentary - 12 March 2015

Good Morning,

Market Roundup

• US Treasuries gained, boosted by sentiment from the ECB bond buying program and seeped through to the 10-year securities auction. The $21 billion sale of the 10T drew strong foreign interest. Indirect bidders, which include foreign central banks, bought 58.6% of the amount sold. Demand as measured by the bid-to-cover ratio was 2.65 times against 2.62 times at the 10T auction held in February. At the latest auction, the high yield generated was 2.139% versus 2.000% in February.
• As the central bank released its 2014 annual report, Malaysian government bonds continued to see pressure seeing the weak ringgit and as players readied for the new 10-year MGS auction this week. USD/MYR was round 3.7027 late Wednesday but down from daily high of 3.7281.
• Bank of Thailand surprised the market as it slashed its policy interest rate by 25bps to 1.75% Wednesday. With that, the 3-year govvies shed almost 10bps intraday, whilst other benchmark tenors fell only slightly. The larger decline along the 3-year government bond was not surprising as we had thought levels were relatively high already. Our earlier target for the 3-year govvies was 2.20% and we think target of 1.85% is achievable in the short term, a break of which will see next support at 1.70%. We think pressure for further rate cuts this year lingers on, supporting our view on the short tenor bonds.
• Still continuing the previous day’s movement, Indonesian government bonds were traded weaker on Wednesday as the rupiah depreciated to 13,200. Bonds opened with wide bid-offer spreads (100-150c) and yields rose 20-25 bps. Support bids were seen at around 7.85% level for the 10-year paper, and was pushed lower by 10bps until closing levels.
• Asian dollar denominated bonds saw weak daily trading as risk appetite ebbed, partly on weak currencies and credit outlook. However, selected names found strength on the back of lack of supply. However, expectations of ECB support and outlook for rate cuts in the emerging markets resulted in a dip in CDS prices the same day.