CIMB Daily Fixed Income Commentary - 11 January 2016

Market Roundup

• US Treasuries weakened upon release of strong Dec NFP numbers with yields spiking but yields still ended lower day-on-day amid sustained interest for safe haven assets whilst players also focused on the wages number which was still flat.
• The Dec non-farm payrolls rose 299k in Dec against 200k consensus and the prior Nov figure was revised up to +252k from 211k in an earlier estimate. Meantime, average hourly wages showed zero growth in Dec against 0.2% consensus.
• We see further strength in the JPY with support at 116.40 and a break of which could send levels fast below 116.00. Main boost for the JPY is continued safe haven bids as we don’t see a policy-led ceiling for CNY as long as it’s below 6.8000 – meaning PBoC could stomach a 6.8000 CNY into the medium to longer term as long as they see pressure on growth especially trade.
• However, bargain buying of USD could surface intermittently especially with EUR/USD heading towards support level of 1.0865.
• Malaysian government bonds closed steady seeing USD/MYR hovering below the 4.4000 level most of Friday (though dangerously close at 4.3980 just after 5pm). In the coming week, we think upward pressure on yields remain, with players still perturbed by China risk. We also watch USD/MYR levels. USD/MYR tested 4.3500 Friday but mostly as the Dollar weakened against major currencies whilst Brent rose to around $34.50. We remain bearish on the Ringgit (with crude remaining below $35), to remain above 4.4000 in the next couple of days.
• Thai government bonds closed mixed with support coming from foreign investors. We think despite the turbulent equities markets, Thai government bonds are supported by safe haven demand and expectations of low interest rates. Our economists see possibility of a policy rate cut by BoT this year to 1.25%. On the flipside, foreign reserves fell to $156.51 billion as at 1 Jan 2016 from the prior figure for 25 Dec at $157.39 billion. Meantime USD/THB was firmer about 36.20 late Friday.
• The IndoGB market was on better buying interest in the morning session last Friday, although most bids were concentrated on the 5-year and 10-year tenors. However after the break, 10-year FR56 was sold in the market, erasing most gains from the morning. Overall not much change in the yield curve, with all eyes concentrated on the US jobs data. Volume remained tiny amounting IDR 5.4 trillion.
• Firmer stock markets supported sentiment along the Asian dollar credit space with sovereign CDS spreads tightening but we noted that in general bond spreads were little changed on Friday. A measure of cautious sentiment was not surprising ahead of the Dec non-farm payrolls release and anticipated surge in primary activity this month. Even though the latest FOMC minutes suggest the recent Fed rate hike was a closer call than previously thought of, a decent NFP figure will again raise chances Fed will soon hike interest rates.
• Also impacting sentiment was credit concerns, specifically of commodities trader Noble group which was cut down to junk rating status amid the slump in commodity and crude oil prices. Noble Jan’20 was heard 12 points cheaper Friday. The iTraxx Asia ex-Japan high grade index barely moved for the day.