CIMB Daily Fixed Income Commentary - 18 May 2016

Market Roundup

• US Treasury yields climbed and settled higher on the back of higher oil prices and positive economic data releases, despite yields pressured lower during mid-day alongside the decline in stock markets on Tuesday. The 2T yield rose above 0.80% for the first time since Apr this year.
• In economic data releases, housing starts recorded at 1172k in Apr, against consensus 1125k. Meantime, inflation came higher at +0.4% during the same period, above +0.3% forecasted earlier. Aside, industrial production staged a robust rebound to +0.7% in Apr, from -0.9% recorded a month prior. To look forward to this week is the Apr FOMC meeting minutes (but Jun hike already priced out by the market whilst recent Fed officials remarks not pointing to a hike in the short term horizon).
• Malaysian government bonds posted little gains, amid active trading flows on Tuesday. Despite the heavy transactions, bond yields were seen only inching lower in general. Meantime, market is also awaiting announcement for the new 10-year MGS auction.
• Thai sovereign yields rose across the curve, guided by heavier net selling pressure post release of better-than-expected 1Q2016 GDP number. Also, we think that the higher sovereign yields were also due to realignment to the higher UST yields and weaker THB. Similarly, IRS curve shifted higher by 4-7bps on Tuesday.
• Indonesian government bonds strengthened due to positive sentiment after OJK cut the maximum guaranteed rate for Rupiah deposits to 7%. Meanwhile, market also saw reinvestment funds from additional liquidity coming from matured FR30 bonds and coupon payment dated 15 May 2016.  However, the net buying interest retreated slightly after the news reported that OJK will implement the infrastructure corporate bond rule (that can be included in the calculation for minimal portion on investing in government bonds for local end-client names). Hence, the demand for govvies might decline. Market volume decreased to IDR11.8 trillion and was driven by bonds maturing in over 10 years (53%) and between 1 and 5 years (27%).