CIMB MYR and USD Weekly Fixed Income Commentary for 22 May 2015

Market Roundup

• For the week ended May 22, Malaysian Government bonds were dealt steady with the sovereign yield curve relatively unchanged in a quiet market. Players took a cautious stance heading toward April CPI report slated for Friday. However, the market did not react to the softer-than-expected number, which showed inflation at +1.8% yoy in April (March +0.9% yoy), against the earlier consensus forecast of +2.2%. The soft inflation was attributed to the lower crude oil price on a year-on-year basis, despite the introduction of GST since Apr 1.
• In the coming week, fresh drivers for the market comprise the anticipated reopening auction of the 7-year GII (GII Jul’22). Auction size should be relatively small, around RM2.5 billion. However, there is a lack of pertinent macro data on tap for bond players. Market direction may be negatively influenced if US Treasuries continue to be sold-off, though we also sense onshore players remain keen net buyers. Sentiment looks positive for continued low rates along the front end of the curve, seeing the recent fall in KLIBOR rates as liquidity remains ample amid a lack of fresh bills auctions. Resistance for the 10-year MGS remains 3.98%.
• US Treasuries ended weaker, in conjunction with the sell-off in German bunds amid concerns of a Greek default. On top of that, the decent reading from core-inflation recorded for the month of April (0.3% against 0.2%) fueled selling activities on Friday, reversing some gains registered following some disappointing US economic data releases and a dovish-sounding FOMC meeting minutes.
• We reckon the UST market may continue to see volatility this week after the Greek Interior Minister stated that the country will default on the loan repayment to IMF in June, if it fails to obtain bailout fund. Our short term 10T target is 2.32%, with exit at 2.06%.