CIMB MYR and USD Weekly Fixed Income Commentary for 27 Mar 2015

Market Roundup

• Malaysian government bonds extended gains for the week ended Mar 27, amid firmer Ringgit in conjunction with more stable global crude oil prices. USD/MYR declined sharply from the peak of 3.7400 a week ago, and hovered at 3.6750 late Friday. On the flipside, Brent crude oil surpassed $58.00/bbl, from the low of $52.60/bbl one month back, boosted by the surprise Saudi airstrike on Yemen, despite the supply glut issue remaining intact.
• On the other hand, the Ringgit swap curve ended steeper, as the front end and bellies of the curve were seen with consistent receiving interest. The market saw bids lower by up to 4bps, tracking the lower 3-month KLIBOR fixing (from 3.76% to 3.73% week-on-week).
• While there was a lack of major economic data releases over the week, the market awaits guidance from exports and trade balance report slated for Apr 3. Aside, The central bank announced new 7-year MGS benchmark auction, which came at an issuance size of RM4 billion, in line with market and our expectation. WI was first dealt at 3.77%, while last heard at 3.79/76% on Friday. Though amount up for tender seem a tad too large we think size is just appropriate as we think foreign interest should be in amid support for the Ringgit and ahead of Malaysian government sukuk inclusion into the Barclays index. However, overall secondary trading may see profit taking from foreigners (and local players) as a decent reading for NFP is expected this week.
• Overall, a cautious week ahead. We see 10-year MGS resistance at 4.02%. IRS may consolidate with 5X5 bond-swap spread target at 25bps for next 1-2 weeks.
• US Treasuries weakened by just a tad last week as the US revised down final reading of 4Q14 GDP to +2.2% from +2.4% whilst Janet Yellen said though rates could begin to rise this year, the rise would be gradual. This week UST players await the March non-farm payrolls which would go a long way to dictate short-term UST movement. Rosy NFP (consensus +248k versus 295k February) reading is still likely but also to watch is unemployment and hourly wages.
• A firm reading will further widen spread of UST against JGBs and Euro Zone govvies. Meanwhile, Euro Zone yields may see some upward trend. Greece submitted fiscal proposals to raise €3 billion revenue and 1.5% budget surplus, whilst Ukraine is set to meet with creditors. Also, Euro Zone govvies supply expected to be large this week over €16 in auction. Also, some upbeat macro data out of Europe also likely especially EC economic sentiments index.
• We think upward UST yields is likely this week, but strong resistance still at 2.30% for the 10T and after that at 2.40% into next couple of weeks.