CIMB Daily Fixed Income Commentary - 19 May 2016

Market Roundup

• US Treasuries further weakened, with selling pressure spurred from the hawkish FOMC minutes released during mid-week. The 10T yield spiked and touched the high of 1.89%, before it settled lower at 1.86%. Market now sees a 32% probability for a rate hike in June, compared to 12% registered a day prior.
• Ringgit govvies moved in sideways amid cautious sentiment heading into MPC meeting slated for 19 May. Total trading volume was thinner at RM2.3 billion, compared to RM3.9 billion registered in previous day. Although we think that central bank is possible to ease this year, we reckon that the policymakers are more likely to adopt wait-and-see stance and hold OPR unchanged in this meeting, particularly after the release of stronger-than-expected 1Q2016 data.
• THB denominated sovereign bonds further weakened during mid-week. Flows were heavy at Bt30.9 billion, in contrast to Bt11.7 billion recorded a day prior. Also, IRS curve steepened, with rates rose by 2-8bps alongside the selling pressure in Thai govvies.
• Indonesian government bond market was on better selling mode today on the back of IDR weakness.  We have seen selling interest from foreign onshore names particularly among the 15-year tenor papers while mixed flows on the belly. We see market remain cautious and prone for profit taking action. On the other hand, we await better levels to extend duration. Market volume decreased to IDR9.8 trillion and was dominated by bonds maturing in over 10 years (45%) and bonds maturing between 1 and 5 years (24%).
• USD credit market took a breather after the recent rally. We reckon that investors were slightly cautious ahead of FOMC minutes, while awaiting new primary deals to emerge. iTraxx Asia ex-Japan IG Index tightened marginally by 1bp to 143bps during mid-week.