CIMB Daily Fixed Income Commentary - 06 Apr 2016

Market Roundup

• US Treasuries rallied with the curve moving flatter even though there was an improvement in the ISM non-manufacturing index, which rose to a reading of 54.5 in the month of Mar versus 54.2 consensus and 53.4 in Feb. Elsewhere, US trade balance showed a larger deficit of $47.1 billion in Feb against $45.9 billion the prior month which now places some risk on 1Q2016 GDP growth. Also, US JOLTS fell to 5.445 million in Mar from 53.4 in Feb.
• Chicago Fed president Charles Evans, though not an FOMC voter, reiterated his view that the Fed will hike interest rates twice this year. His view is that inflation is expected to stabilize this year and edge higher next year. As for timing, Evans thinks there might be a hike mid-2016 and another towards the end of the year.
• EUR/USD is down to 1.1384 after finding itself around 1.1415 overnight but USD/JPY is down towards 110.43 after opening on Tuesday near 111.70. Overall, the USD index rose just 0.14% to 94.644 despite the positive reading from the ISM services index. On the other hand, US trade balance showed a larger deficit of $47.1 billion in Feb against $45.9 billion the prior month which now places some risk on 1Q2016 GDP growth.
• The Euro Zone's services PMI was revised down to a reading of 53.1 in Mar from a 54.0 initial estimate. The Feb reading was 53.3.
• Malaysian sovereign bonds were well supported, despite Ringgit weakened a tad on Tuesday. Expect MGS to show mixed-to-firm performance in the near term period, amid a lack of fresh catalyst, while direction of crude oil price and USD/MYR remained the key drivers at this juncture.
• Bank Negara Malaysia announced details of the reopening auction of 7-year GII, which came at an issuance size of RM3.5 billion. WI was last heard around 3.940/915%.
• MYR corporate bonds extended gains, amid heavy trading volume totalling RM782 million. Cagamas tranches maturing 2017-2025 were actively transacted, with yields closed unchanged to -11bps. Apart from that, investors also tapped onto medium and long term AA3 papers such as BGSM and JEP for yield pickup.
• Thai government bonds posted little gains, in conjunction with lower IRS curve on Tuesday. BoT conducted auctions for LB446A (Bt9.8 billion) and LB206A (Bt20.4 billion) on Tuesday. Demand was weak for LB446A, with a bid-cover ratio at 1.40x, while average yield stopped at 2.1682%. On the flipside, LB206A auction garnered a decent result, as bid-cover ratio reached 2.79x, while average yield closed at 1.3694%.
• Indonesian government bonds opened weak, a bit toppish with offers shown all over the market. However, buyers kept coming in and buying at current level especially on the 10-year benchmark bond. Buying interests were also reflected in incoming bids in Tuesday’s Syariah bond auction that reached IDR13 trillion. The government upsized the issuance size to IDR5.8 trillion Syariah bonds from IDR4 trillion target.