CIMB Daily Fixed Income Commentary - 01 Jul 2015

Market Roundup

• US Treasuries pared gains on Tuesday, driven by profit taking activities after the rally a day before. The 10T was consolidating at a narrower range at 2.31-2.37%, after seeing the yield tested the high at 2.49% late last week.
• The Ringgit strengthened to below 3.7420 before it went back up to 3.7742 this morning, post Fitch Ratings’ affirmation of Malaysia’s sovereign rating at A- and revising the outlook back to Stable from Negative before. More volatility should be expected ahead of non-farm payrolls this Friday and anticipated US Dollar strength.
• The June non-farm payrolls is expected to show another firm number with consensus showing an increase of 230k (+280k in May). Before that, we have ISM manufacturing data on tap, with consensus showing an increase to a reading of 53.2 for the month of June from 52.8 the month before.
• Euro was at 1.1131 this morning weaker still after hitting 1.1245 overnight as the creditors rejected a last minute appeal from Greece, which now becomes the first developed country to default a loan from the IMF.
• Malaysian government bonds surprisingly posted gains on Tuesday, despite players were generally wary while waiting for the Fitch review outcome on Malaysian sovereign rating. Latest news reported that Fitch affirmed the rating at A-, while revising the outlook from Negative to Stable.
• Fitch cited the improving fiscal position of Malaysia, strong economic growth and low inflation as some reasons for the affirmation and revision in rating outlook. We gather that fiscal positives on Malaysia right now comprise fuel subsidy reforms and kick off of the GST in April this year. However, Fitch remains wary of Malaysia’s government debt levels, specifically its contingent liabilities position.
• Thai government bond yields inched lower across the curve, amid thin bidding interest, supported by sluggish recovery in domestic economy. Apart from that, offshore players were seen better buyers at the longer end (7- to 10-year papers) on Tuesday.
• Indonesia government bond market traded firmer on the back of offshore inflows particularly on the 5- to 10-year buckets. Given on light supply, the interest buying was stronger as some interbank players joined the flows. We remain to see market resilient in the midst of Greece problems. Transaction volume jumped to IDR37.4 trillion.