CIMB Daily Fixed Income Commentary - 26 Oct 2015

Market Roundup

• US Treasuries posted losses, reacting to the gains in stock market, boosted by potential expansion in ECB stimulus programme in December, and PBoC’s rate cut decision ahead of weekend. The 10T yield rebounded from 2.02% and hovered at 2.08% on Friday.
• Malaysian sovereign yield curve ended steeper, guided by pre-budget announcement rally on the shorter dated papers on Friday. Also, Ringgit was dealt firmer against USD amid speculative moves, as USD/MYR fell steeply to test 4.2100, before settling at 4.2380 on Friday. Meanwhile, we also heard the latest inflation number with the CPI easing to +2.6% yoy in Sep from +3.1% registered a month ago. The Sep CPI was also lower against earlier consensus of +2.9% yoy and this should aid sentiment along the bond market in the coming week. However, we think market sentiment will still be cautious in the coming week, seeing the already high valuations in short tenor bonds.
• Thai market closed on Chulalongkorn Day holiday.
• Indonesia government bond market strengthened on the back of dovish ECB news. Buying flows were seen in 10-year and 20-year buckets, with foreign interbank names keep bidding in the market. With bond supply quite thin in the market, prices moved up easily, causing yield curve on belly to long end to move lower by 15-18bps on average. We think Tuesday's bond auction, as well as FOMC meeting, will dictate market direction for this week. Volume remained very small amounting IDR 5.2 trillion.
• Asian dollar credit market strengthened, in conjunction with rally in stock markets, as risk-on sentiment boosted by expectation of further easing by ECB, which may be as early as December this year. On the closer end, Malaysian names were seen quoted tighter by up to 8bps on Friday, while regional HY names were 0.25-1.38pts higher. Meantime, China conducted the sixth rate cut since Nov last year, bringing the one-year lending rate and one-year deposit rate lower by 25bps each to 4.35% and 1.50% respectively. Furthermore, the central bank also lowered the RRR by 50bps to 17.5% for the fourth time this year. We reckon that this easing move will provide support to the Asian market in the near term.