CIMB THB Weekly Fixed Income Commentary for 04 Sep 2015

Market Roundup

• There was less activity along the THB government bond market last week. Volume traded averaged Bt16.1 billion per day compared with Bt17.1 billion per day the week before. Trade was affected as the THB further weakened and caution took hold ahead of the Bank of Thailand’s MPC meeting due 16 Sep and the US Fed’s FOMC meeting 17 Sep. A change in policies - rate cut for BoT and rate hike for the Fed - may be in the offing. The possible divergent policy was reflected in the USD/THB which was sent to above the 36.00 level as we start off this week. USD/THB ended last week at 35.855 against 35.876 the week before. In Thailand macro data, the headline CPI remained negative, at -1.19% yoy in Aug.
• We don’t expect there to be strong support for Thai bonds in the short term horizon. We expect a continued increase in govvies yields, to keep pace with the rise in IRS rates, and if expected BoT keep the policy rate steady at the MPC meeting. The 5-year IRS was around 2.27% whilst the 5-year govvies is just above the 2.00% level at 2.04%. A month ago, levels were near par. In addition, continued volatility in global markets especially ahead of the FOMC meeting and with continued China growth worries, will continue to place concerns amongst foreign investors. We target the 10-year govvies above 2.85% this week (resistance should be around 2.92%).
• Trades of corporate bonds also thinned, reflecting the govvies mood. Average daily volume fell to Bt1.7 billion per day versus Bt1.9 billion the day before. Last Friday saw volume shrinking to just Bt1.0 billion and we noted flows concentrated along tenors of three years or shorter. In the coming week, we think investors should stay focused on bonds with short maturities.