CIMB MYR and USD Weekly Fixed Income Commentary for 05 Jun 2015

Market Roundup

• Last week, Malaysian sovereign bonds weakened following the sell-off in both US Treasuries and German bunds. Sentiment was bearish due to the weaker Ringgit as well as lower crude oil prices. However, short dated government papers were better supported as players shortened their portfolio duration amid the rise in yield. A portfolio of bonds with shorter duration limits losses, as a basis point rise in yields is equivalent to a smaller unit in price movement. Late Friday, amid the strength of the dollar, the USD/MYR was near 3.7290 from about 3.6675 the week before. Meanwhile, Brent crude was hovering near $61.84 per barrel from $65.56 the prior week.
• Corporate bonds moved sideways before eventually seeing thin selling pressure, spurred from the weakened government bonds. Trading activities were led by power sector bonds, which included TNB WE, YTL Power, SEB, Kimanis and Malakoff. Notably, the newly issued Benih Restu Jun’25 was transacted 8bps higher at 4.70%. For the coming week, we reckon that investors may consider taking profit off longer dated corporate bonds amid greater volatility in the market.
• After the recent surge in US Treasury yields, we think US market sentiment will grow more cautious. Macroeconomic data and Fed-speak will be closely followed, as players try again to gauge when Fed policymakers will eventually hike interest rates. UST will also feel pressure if Euro Zone yields are able to sustain their current relatively higher levels for a more extended period of time (tightening their spread between Euro and USD yields).
• Asian dollar credits moved in sideways, before eventually traded wider heading toward weekend, amid selling pressure in UST. Regional sovereign-related names dealt wider, as Indonesia Jan’25 fell from 99.79pts to 97.57pts on a week-on-week basis, while Vietnam Nov’24 dropped from 102.14pts to 101.51pts during the same period.