CIMB Daily Fixed Income Commentary - 20 May 2016

Market Roundup

• US Treasury yields consolidated in narrower ranges and inched lower across the curve on Thursday. The 10T settled marginally lower at 1.85%, after rebounded from the low of 1.70% late last week. Macro data held only little sway whilst players took heed of comments from Fed officials this week on possible Jun rate hike. Initial jobless claims were slightly higher at 278k as at 14 May, in contrast to consensus 275k and the Philly Fed usiness outlook index fell to -18.6 in May from -1.6 the month before.
• Regional currencies were under heavy pressure on knee-jerk buying into USD. USD/IDR surged from 13380 to 13565, whilst USD/MYR peaked at 4.0947, before it settled lower at 4.0820. We reckon that regional currencies may see some pullback ahead of the weekend on USD reversal.
• Malaysian sovereign bonds moved in a narrow range as players awaited the MPC outcome late Thursday. Elsewhere, Bank Negara announced details of the new 10-year MGS benchmark auction, with an issuance size of RM4 billion. WI was last heard at 3.87/80%.
• As it held the OPR unchanged at 3.25%, Malaysia’s central bank continues to cite global economic developments and financial markets as the main potential risks. However, it appears confident of the domestic economy improving further in 2H2016. Our economist now expects the OPR to stay unchanged until the end of the year.
• Thai govvies remained under heavy net selling pressure across the curve. Meantime, daily volume increased from Bt30.9 billion to Bt35.9 billion, with flows led by LB21DA, LB196A and LB206A. However, foreign players turned net buyers, with total net buying amount totalling Bt9.4 billion, after being net sellers in recent five consecutive days.
• Indonesian government bond market saw sell-off pressure as the Rupiah weakened to 13550-80. Foreign banks were net sellers on medium-to-long end tenors, and the selling was absorbed by local players. Bids were supporting the market in the early session, but after the break bids turned defensive, pushing yields higher. Market volume increased to IDR10.4 trillion and dominated by bonds maturing in over 10 years (57%) and bonds maturing between 5 and 10 years (21%).
• BI kept BI rate, Lending Facility, Deposit Facility and 7d Reverse Repo rate unchanged as expected. There might still be an easing bias to policy direction going forward, especially as 1Q2016 GDP slightly disappointed (+4.92% against +5.07% consensus) and inflation has slowed. BI also cut its forecast for growth this year to 5-5.4%from previous estimate of 5.2-5.6%. It sees inflation at mid-point 3-5%.