RHB FIC Rates & FX Market Update - 12/5/15

12 May 2015

Rates & FX Market Update

The Global Bond Selloff Persisted After a Brief Reprieve; BoE Held Rates; Greece Makes IMF Repayment But Grexit Concerns Remain

Highlights

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¨    Global bonds sold off after the brief respite late last week; UST yields climbed 4-14bps despite the relatively softer Labour Market Conditions Index which continued to dampen near term FFR hike prospects. Lingering concerns over Grexit persisted despite the Greek repayment to IMF; GGBs up 10 to 50bps. Similarly, GILTs marked overnight losses (+5-8bps) following BoE’s decision to hold rates at 0.5%. We await Wednesday’s Inflation Report for an updated indication of BoE’s rate normalisation schedule which may be pushed out further given a Conservative-led government. Investors will also receive Australia’s budget later today where a lack of any credible fiscal consolidation plan to address the fast rising debt levels and widening fiscal shortfall may challenge the country’s efforts to jumpstart an economy facing shifting economic drivers.

¨    KTBs were buoyed by easing regulations to support FDIs into South Korea which we opine to be a longer term positive in supporting the export dependent economy. Nonetheless, we withhold any early optimism given possible implementation lags, further delays on fiscal reform measures and resurfacing geopolitical risks from North Korea. Malaysia’s IP and manufacturing sales resumed its upward growth trend following February’s festive blip; MGS recorded further gains at the belly where offshore MGS and GII holdings saw record highs of MYR157.5bn and MYR10.7bn respectively as oil related woes eased.  Elsewhere, Philippines’ exports rebounded in March (Mar: +2.1%; Feb: -3.1%) where we expect the unexpectedly strong exports to buoy the PHP over the near term. 

¨    USDTHB climbed towards a 4y high of 33.735 following 2 back-to-back BoT rate cuts totaling 50bps. Easing regulations on domestic residents’ capital outflows is likely to support an export recovery, diminishing the odds of further rate cuts. However, any further relapse of political uncertainty may prolong the recovery cycle.

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