CIMB MYR and USD Weekly Fixed Income Commentary for 26 Jun 2015

Market Roundup

• Last week, Ringgit government bonds were dealt mixed, moving within narrow ranges. Meantime, trading activities were concentrated on the front end of the curve with players being slightly cautious as the ringgit weakened, climbing from 3.7435 to 3.7665 against the US dollar on a week-on-week basis. Sentiment was guarded amid gyrations along the forex and US Treasuries markets, while local players were wary ahead of the Malaysian sovereign rating review by Fitch.
• As we open this week, MGS yields are higher despite the dip in US Treasuy yields, whilst players are also preoccupied with the 5-year GII auction (RM3.0 billion on the block and WI last Friday at 3.76/72%).
• For now, we like the 7-year MGS which is seen at 4.00% or a small 8bps spread from the 10-year MGS but 22bps below the 5-year MGS. We are eyeing a short term (2-week) yield pickup of 5bps. As for the 10-year MGS, short term resistance remains at 4.20%. Elsewhere, our 5X5 bond-swap target is 25bps. Stop-loss at 38bps.
• US Treasuries weakened extensively last week but has reversed this morning as Asia opened for the week, amid a fresh hunt for safe haven with the Greece debacle holding focus. UST yields and the Euro currency were dragged lower by the Greek debt tension, as the parties failed to break the deadlock in negotiation. This morning, EUR/USD found itself near 1.0973 from above 1.1420 last week. The ECB has decided not to increase emergency funding to Greek banks as the government was due to make a €1.6 billion repayment to the IMF on Tuesday. Prime Minister Alexis Tsipras has responded that banks in Greece will remain closed on Monday and that capital controls will be imposed. Tsipras also called for a referendum on the bailout to be held Jul 5, which is later than the repayment deadline on Jun 30, and will be of no use without the extension.
• The 10T is hovering at 2.32% and it looks like our target for end-June remains 2.30% (above LT trend). Players will remain long UST this week.