CIMB Daily Fixed Income Commentary - 16 May 2016

Market Roundup

• UST yields dipped on the back of declines in both crude oil prices and equity markets. Yields were initially higher, driven by an upbeat retail sales number reported for the month of Apr. However, risk-averse sentiment pressured yields lower on the bellies and longer end of the curve. DJIA settled about 1.1% lower at 17535, whilst Brent crude oil edged lower from $48.08/bbl to $47.83/bbl.
• Regional currencies weakened against USD on Friday, whilst may continue to weaken due to the strong US retail sales number reported. USD/SGD climbed and tested the high at 1.3750, approaching the immediate resistance at 1.3800. Aside, USD/THB trended higher from the support level of 35.200 and closed at 35.455.
• Ringgit government bonds closed steady with yields down 1-2bps Friday and about 5bps for the week along the front of the curve as players repositioned towards a more dovish stance by Bank Negara policymakers (speculation of rate cut at the upcoming policy meeting on 19 May). The decline in current account surplus to 2.41% of GDP maintained the Ringgit to remain above 4.0300 but was mostly shrugged aside by bond players.
• There was only a slight correction in IRS trading as rates rose Friday after the 1Q2016 GDP beat estimates (IRS rates rose up to 2bps Friday). The quarterly GDP came above consensus at +4.2% yoy (consensus 4.0%), but it was softer than +4.5% recorded in the previous quarter. The new central bank governor expects Malaysia to achieve a growth rate of 4.0-4.5% this year, supported by “gradual improvement in private sector spending as the impact of GST and price adjustments lapse.”
• Thai government bonds closed mildly weaker with foreign players remaining large net sellers (net sell of Bt4.8 billion of THB bonds Friday). Elsewhere, THB was weaker at 35.45.
• On Friday, IDR government bonds rallied especially short-to-medium end bonds, with a bull steepening of the yield curve. The government is planning to abolish the tax on government bonds, though this proposal still needs to go to Parliament. The news was taken in positively by the market. Offshore names were seen on the bid side, and met by local banks that looked to sell on rally. Volume increased to IDR13.1 trillion and was dominated by bonds maturing in over 10 years (35%) and between 1 and 5 years (34%).