CIMB MYR and USD Weekly Fixed Income Commentary for 27 Nov 2015

Market Roundup

• Malaysian government bonds ended firm last week, led by the 3-year MGS which found its way to close at 3.42% or 13bps lower week-on-week. Meanwhile, the 10-year MGS is just slightly lower at 4.24% down 2bps. Aiding the bond market was the firm Ringgit levels, which hovered near 4.2600 late Friday from around 4.4000 the week before. Some improvements on domestic credit front, a rise in crude oil price and a weaker Dollar sent the USD/MYR pair lower for the week. Immediate Brent futures price was heard around $45.18 per barrel late Friday against $44.66 a week before but did find its way to $46.50 mid-week.
• On the local bond market, focus was on the 3-year GII auction, which came at slightly higher than expected RM3.5 billion size. Earlier, we were eager to check the auction to gauge current sentiment in the market, which on top of the large auction amount had little else to drive sentiment, seeing the already firm Ringgit and US Treasuries already on weaker track going towards the Dec FOMC meeting. As it transpired, the auctioned ended on decent note with the bid-cover at 1.86 times. However, the average yield was 3.58% or at higher end of WI trading just a day prior to tender closing. There was a lack of local demand in the auction, we were told.
• US Treasuries posted gains after the prior weeks’ slump, with sentiment driven by mixed to weaker economic data releases and safe haven demand at end of last week whilst global equities markets (namely China’s) tanked. The bellies of the yield curve moved lower up to 5ps week-on-week.
• Yet, latest Fed Funds Futures trading is pricing in a high 76% chance of a Dec rate hike, as opposed to 70% chance last week and just 50% chance in futures trading at end-Oct. Meantime, LIBOR rates rose.
• Asian dollar credits widened on a week-on-week basis, amid bearish sentiment due to geopolitical tension with Russian plane downed near Syrian border, as well as tumble in China equity market. On top of that, we think that there was also a lack of fresh catalyst over the holiday-shortened week in US.