CIMB THB Monthly Fixed Income Commentary for March 2015

Good afternoon,

Attached is the monthly market commentary for March 2015. We have included some near term market outlook for the month of April.

• Government bonds rallied with Bank of Thailand surprising the market as it slashed interest rates by 25bps to 1.75%. Bonds rallied further ahead of end-month supported by end-quarter portfolio pickup and as players further priced in outlook for another rate cut. In economic numbers, the release of weaker-than-expected custom exports numbers supported sentiment.
  Short term, we think Thai govvies will remain firm but on consolidation mode.
• Up to the next MPC meeting slated for end-April, we see 3-year govvies to hover near 2.00% (and currently breaking LT trend) (see next chart), and 5X5 year swap spread at minus 15-20bps, as both cash and swaps price in a rate cut. A clean and sustained break below LT trend will occur in the event of a BoT cut end-April.
• As for corporate bonds, we continue to favor short term debt. However, some improvement in risk appetite can be expected, especially if investors want to seek out yield pickup, which can be found along longer tenors.
• We are also eager for more activity along the primary front. The primary market was active in March 2015 with offerings estimated at Bt44.9 billion, against average of Bt36.5 billion issued in January and February. Even though the pace of new credit offerings so far this year is relatively smaller (at Bt117.9 billion in 1Q2015 against Bt186 billion in the same quarter of 2014), the pace could quicken if corporates take advantage of lower interest rates and demand still from investors.