CIMB Daily Fixed Income Commentary - 17 Nov 2015

Market Roundup

• US Treasuries closed steady boosted by safe haven flows on Monday after the Paris terrorist attacks in Paris, France. Also spurring safe haven bids was Japan’s GDP which showed the country slipping back into recession. In economic data, the Empire manufacturing index showed negative reading of -10.74 in Nov against earlier consensus expectation of -6.50.
• However, we expect high probability of profit taking pressure. Meanwhile, technicals signals 10T resistance at 2.45% and next will be a high 2.60%. We think some reaction is forthcoming when the Fed releases its latest FOMC meeting minutes. The statement accompanying the FOMC meeting was more hawkish wherein policymakers were more upbeat on US growth whilst there was little focus on global financial developments derailing tighter US policy.
• We see firm Dollar this week but upside is limited. Dollar Index resistance remains at 99.50. A strong Dollar plays into the hands of the Fed possible abstaining from fast pace tightening in 2016 – even with a hike in Dec 2015 FOMC. Risk especially apparent with ECB loosening stance (EUR/USD at 1.0738) and weak Japanese 3Q2015 GDP data today (-0.2% qoq versus -0.1% prior consensus expectation).

·  Rupiah is seen slightly firmer this morning around 13730 from 13754 on Monday when it released trade surplus of $1.02 billion in Oct though both exports and imports showed larger than expected declines of 20.98% yoy and -27.81% yoy respectively. Bank Indonesia policymakers meet to decide on interest rates today though no changes are anticipated. Expect sustained pressure on IDR this week.

• Ringgit government bonds marginally weakened on razor thin volume with yields up 0-3bps along the bellies of the curve. There was a lack of fresh drivers, but we think a weak Ringgit didn’t help.
• Thai sovereign bonds closed mixed but there was support along short to medium tenor papers. Thailand reported 3Q2015 GDP was a better-than-expected +1.0% yoy against +0.6% consensus though the prior quarter’s growth was revised downward to +0.3% from +0.4% in an earlier estimate.
• Indonesia’s government bond market weakened as USD/IDR shot up to 13750 level on negative sentiment caused by the Paris attack. Generally nothing much happened in the market ahead of BI MPC meeting.

·  Asian dollar bonds showed weakness on risk aversion. Japan’s 3Q2015 GDP showing contraction of -0.2% qoq versus similar -0.2% in 2Q2015 meant the country entered a recession spooked the credit markets. However, Chinese names saw bargain hunting interest, after recent sell-down, especially on Shanshui Cement.