CIMB Daily Fixed Income Commentary - 28 Apr 2016

Market Roundup

• US Treasuries reversed losses to close strongly on Wednesday, after the Fed decided to maintain the FFR unchanged at the range of 0.25-0.50%, as widely expected but has left the door open to a hike in Jun. Policymakers mentioned that labor market has continued to improve despite economic activity showing signs of slowdown and downplayed ‘global economic and financial developments’. Household spending, business fixed investment and net exports showed signs of moderation, while inflation remained below the central bank’s 2% objective, partly due to the falling energy prices and cheaper non-energy imports.
• Meantime, we think that the Fed sounded slightly hawkish, leaving the door open for further rate hikes, meaning that the actual interest rate adjustment path will be data dependent.
• Regional currencies were range bound during mid-week. USD/MYR moved between 3.9040-3.9430 with the MYR boosted by announcement of new Bank Negara governor, whilst USD/IDR consolidated within the range of 13146-13230. However, USD/SGD edged lower to below 1.3500 from 1.3527 registered a day before.
• In the Ringgit sovereign bond market, secondary trading was relatively quiet in the earlier session Wednesday. However, the announcement of new central bank governor helped lifted the positive sentiment in the second session. Overall, market closed a tad weaker than prior day, amid the cautious stance awaiting FOMC outcome.
• Thai govvies ended weaker mid-week, as investors trimmed positions ahead of the FOMC meeting. On the other hand, the auction of LB296A was softer-than-expected, with a bid-cover ratio of 1.68 times, while average yield stopped at 2.0594%.
• Indonesian government bond market opened higher in price by 25-50 cents. However, after buying flows quieted, bonds started to weaken, sending the yield curve higher by 2-4 bps ahead of the FOMC meeting. We think in general players were more inclined to buy bonds in auction compared to the secondary market. However, we think the market remains resilient, limiting the downside at this juncture. Meantime, market volume decreased to IDR18.6 trillion, whilst heavily traded papers were money market papers (46% of flows) and those maturing in over 10 years (33%).