CIMB Daily Fixed Income Commentary - 13 May 2016

Market Roundup

• US Treasuries weakened even though the stock market was mostly weak Thursday and amid the release of higher than expected initial jobless claims. Meanwhile, crude Brent was firm around $48.08 overnight. Initial jobless claims surged to 294k in the week ended 7 May against 270k consensus and the previous week’s 274k. The market now looks towards more data Friday including retail sales , PPI and the University of Michigan sentiments index.
• The US Dollar regained strength on Thursday, after some reversal the day before, with the DXY index up 0.33% to a reading of 94.13. This was despite weaker-than-expected economic data, namely initial jobless claims which surged to 294k in the week ended 7 May against 270k consensus and the previous week’s 274k. Fed-speak did boos the Dollar though, as Boston Fed president Eric Rosengren saying that markets are not pricing in enough of the Fed’s possibility in monetary tightening. The Ringgit is now weaker versus the US Dollar as the greenback found late strength. USD/MYR is now up to 4.0365. The Malaysian currency was firmer the day before on Dollar weakness and firm crude prices. We are eyeing 4.01/03 range today.
• Malaysian government bonds continued to show strength with yields down 1-3bps on the day. Sentiment continued to be buoyed by outlook expectations of dovish Bank Negara ahead of the 19 May MPC meeting. Elsewhere, MYR also showed strength to hover nearer the 4.0200 level late Thursday whilst Brent crude was firm around $47.90 per barrel. We heard demand for MYR govvies came from both local and offshore players.
• Thai government bonds came under heavy net selling pressure from foreign players (net sell of Bt8.6 billion on Thursday) but the market still closed within a tight range. Aside, THB remained firm around 35.340 versus 35.330 a day before. Despite the foreign net selling pressure, we thought THB bonds remained relatively attractive vis-à-vis spread against USD returns, no doubt aided by this week’s BoT action to hold interest rates steady.
• Thai policymakers stated the economy would continue to expand at a rate near prior assessment, but face greater downside risks on the domestic front. On the flipside, monetary conditions eased on the back of low bond yields and decline in commercial bank lending rates. Overall, the central bank sounded relatively neutral and we think that it will continue to adopt “wait-and-see” stance in deciding its policy stance.
• Indonesia government bonds were traded in a tight range and volume was thin on Thursday. Some buying interest was seen along the 3-year tenors, but nothing much elsewhere with some local players still seen interested in the longer end of the curve. Market volume decreased to IDR8 trillion and dominated by bonds maturing over 10 years (52% of overall flows) and 1-5 years (25%).