CIMB Daily Fixed Income Commentary - 29 Oct 2015

Market Roundup

• Short dated US Treasury yields surged on the heels of the FOMC statement overnight. The FOMC sounded more hawkish than before, as it removed the line that global developments may restrain growth. The FOMC also said US economic activity ‘has been expanding at moderate pace’ whilst upgrading the rate of household spending and business fixed investment to solid in recent months. Though prospects for a Dec hike has risen, the Fed said even though employment and inflation are near ‘mandate-consistent’ levels, economic conditions may warrant interest rates to move below where it sees as ‘normal’ in the long run.
• The Dollar moved to firmest level against the Euro in nearly three months as the FOMC revealed signals it may hike interest rates in December. EUR/USD is now hovering near 1.0930 against 1.1065 overnight.
• MYR govvies were dealt sideways on low volume. Leading the flows was the recently reopened 7-year MGS which ended unchanged. WI trading of the new 20-year GII was light, seen around 4.80%. We think there should be sufficient demand for the auction seeing the small RM1.5 billion size and pretty attractive 4.80% quotes – or 30bps above the current 20-year MGS.
• Thai bonds ended mixed but within a tight range. We think sentiment was guarded as players ponder outcome of the next MPC meeting (we see good chance of a 25bps rate cut). We also expect IRS rates to fall slightly 2-3bps before the week is out.
• Indonesian government bonds were traded up on buying flows in morning session ahead of the FOMC meeting, with foreign interbank keen on the 10-year bucket, sending down yield curve on average 8-10 bps. However, some profit taking activity in the same 10-year bucket was seen nearing closing hours.

·  Asian dollar credit spreads moved mixed on Wednesday, when we noted profit taking activities, after recent gains, which in turn came after PBoC’s rate cut. In addition, Asian dollar bond trading was also edgy ahead of this week’s FOMC meeting. Weakness was seen along Indonesian names, such as Pertamina 44’s which fell 0.50 points.