CIMB Daily Fixed Income Commentary - 11 Sep 2015

Market Roundup

• US Treasuries posted losses in conjunction with gains in stock markets, pairing with mixed economic data releases. The wholesale inventories contracted by 0.1% in July, below 0.3% expansion projected by the economists, while initial jobless claims came in line with market expectation at 275k for the week ended Sep 5.
• Ringgit government bond prices fell as IRS rates rose and the Ringgit weakened amid further risk-off sentiment in the emerging markets. The sovereign rating cut on Brazil to non-investment status raised concerns that BRICs turmoil will spread to other emerging markets including Malaysia. In economic data release, the Jul IPI rose 6.1% yoy, higher than prior expectation of +5.0% and +4.3% in Jun. This did little to influence MGS direction as the market now awaits the MPC meeting on Friday. Most players do not expect a shift in policy direction as yet. Hence, we do not see this as a driver ahead of the meeting end.
• Thai government bonds weakened further with foreign players being net sellers of Bt2.6 billion of Thai bonds on Thursday. Both Thai bond yields and IRS rates rose as risk appetite remains elusive in the emerging markets. Furthermore, the THB weakened still, up towards 36.150 late Thursday from 36.065 the day prior.
• The IDR denominated government bond market continued to weaken on higher USD/IDR which breached 14300 and traded mostly in the 14335-35 range. BI was seen in bond market, checking prices and also conducted at buyback auction with target size of IDR1 trillion. It absorbed IDR753 billion for all benchmark series except the 5-year FR69 (cancelled). MoF also held a debt switch auction with destination bonds 6-year and 11-year, and source bonds maturing in 1-year to 3-year. Our view has not changed - stay light ahead of FOMC meeting next week. Volume improved to IDR 14 trillion.
• Asian dollar credits weakened amid fresh EM risk off sentiment. The cut in Brazil’s sovereign rating and release of mixed economic data in China and Japan pressured the market.