CIMB Daily Fixed Income Commentary - 28 Oct 2015

Market Roundup

• US Treasuries strengthened with yields up mildly after the release of weak economic data. These include durable goods order still showing negative figures (-1.2% in Sep though not as bad against consensus of -1.5% whilst the prior month’s number was downward revised to -3.0% from -2.0% prior estimate). Weak crude oil prices also pressured yields lower as players await this week’s FOMC meeting.
• Even though we think the Fed will not act to hike rates this week, we are eager to hear signals from the Fed of possible action at the Dec FOMC meeting. However, a bigger driver for UST this week, in our opinion, is lack of new supply. Ahead of potential debt ceiling stalemate, the Treasury Department has cancelled this week’s scheduled auction of the 2T. The Treasury Department is still scheduled to auction $35 billion and $29 billion of 5- and 7-year notes this week.
• The US Dollar showed strength ahead of this week’s FOMC meeting. Even though the Fed not expected to raise interest rates as yet this week, the Dollar maintained strength vis-à-vis other currencies seeing potential added ECB monetary stimulus and PBoC’s recent rate cuts (and expected more to come from PBoC). More signals from ECB doves came as its chief economist Peter Praet indicated there are ‘no taboos’ to find ways to boost up growth and alleviate low inflation risk.
• Malaysian govvies were dealt mixed, amid thinner transactions recorded on Tuesday. Meanwhile, USD/MYR continued to trade within a wide range of 4.2200-4.2800. We think that the bond yields may continue to move in sideways, while potentially seeing some upticks heading into FOMC.
• Thai government bonds ended flat, amid muted trading interest, as daily volume shrank to Bt7.48 billion, from Bt16.62 billion registered a day before. Foreign players marked fourth consecutive net selling, but with a smaller amount of Bt991 million on Tuesday.
• Indonesia government bond yield curve went up on auction day as government decided to upsize bond issuance from IDR 7 trillion target to IDR 10 trillion (+IDR 3 trillion). Bid-to-cover ratio for FR56 (10-year) and FR73 (15-year) were 1.10X and 1.07X respectively, causing long tail results. However foreign interbank names chased FR73 after auction announcement, sending 15-year yield only 2bps higher than prior day close. Demand was still seen at this level, we expect bond market to be well bid tomorrow, with investors betting on the upcoming FOMC. Volume ticked higher to IDR 7.4 trillion.