CIMB MYR and USD Weekly Fixed Income Commentary for 31 Jul 2015

Market Roundup

• Early the week, we noted decent demand for short dated papers, guided by the rollover activities on maturing papers such as MGS Aug’15 and Sep’15. However, focus was on the weaker MYR, which triggered selloff in Ringgit sovereign bonds last week, as USD/MYR climbed from 3.8098 to 3.8310 on a week-on-week basis. Elsewhere, highlight this week will be the readings from exports, trade balance and foreign reserves. On the other hand, the reopening auction for 10-year GII garnered a decent result with a bid-cover of 1.85 times, on the back of a large issuance size of RM3.5 billion. Meantime, average yield closed at 4.105%. This month, we have three auctions scheduled – 5-year GII reopening, 3.5-year SPK, and 10-year MGS reopening, where the 5-year GII reopening may be announced this week.
• While the government bonds were under pressure, corporate bond market was held pretty stable for the week ended Jul 31. In general, corporate bond yields continued to shift lower amid persistent bargain hunting interest, particularly on the bellies of the curve. The secondary market may continue to be well supported at this juncture, amid slower primary pipelines so far this year. However, further upside in corporate bonds may be capped by the tighter credit spreads on the heels of rise in MGS yields.
• US Treasury yield curve ended flatter for the week ended Jul 31. UST yields were sent higher by early week gains in stock market, alongside the latest FOMC minutes, which pointed to a potential rate hike later this year, if the policy makers see further improvement in labour market as well as growing inflation toward the 2% objective over a medium term. However, economic data releases came in softer than expected, pairing with some month-end demand, weighed the UST yields lower ahead of weekend. The 2Q2015 GDP expanded by a slower pace of 2.3% (against consensus view at 2.5%), while employment cost index recorded a lower-than-expected gain of 0.2% (against consensus view at 0.6%).
• Asian credits were seen traded unchanged to wider, as buying sentiment was dampened by wait-and-see stance heading towards FOMC meeting slated for end of July. Meanwhile, oil-related papers widened amid falling crude oil price.