CIMB Daily Fixed Income Commentary - 24 May 2016

Market Roundup

• US Treasuries closed little changed with curve marginally flatter, as players priced in a higher possibility of rate hike in Jun. Fed funds futures trading sees a 32% probability of Fed hiking rates in Jun, in contrast to 28% marked last Friday. On top of that, piling more pressure is anticipation of incoming shorter dated Treasury supplies (2T, 5T and 7T) this week.
• Meanwhile, St Louis Fed President James Bullard revealed his concerns that the prolonged low interest rates environment “could feed into future financial instability”. Meanwhile, he pointed out that the relatively tight labor market may also raise inflation pressure, which will eventually improve the chances for hiking rates.
• Support for 10T remains at 1.75% but for the coming week we target 1.93% before next resistance at 1.98% which completes a 100% retracement towards levels last Oct. Levels a couple of bps below 2.00% seemed to have been major inflection points since end-2014.
• Malaysian sovereign bonds closed mixed amid thinner trading interest, recovering a tad from knee-jerk selling pressure late last week. Focus was on auction of new 10-year MGS, which was well-received, with bid-cover of 2.193 times for the RM4 billion issue size. Despite the firm interest, average yield stopped at 3.90%, skewed toward the higher end of a spread of 3.878-3.910%, whilst higher than the WI level 3.88/86% quoted last week.
• THB denominated government bonds moved sideways or recovering a tad from the selloff ahead of the long weekend. Similarly, Thai IRS curve ended flatter, with rates fell by 5-7bps on the longer end. Meanwhile, foreign players resumed net selling activity with total amount of Bt2.9 billion, after turning into net buyers late last week.
• Indonesian government bond market was very quiet Monday ahead of next day’s auction. Market saw light flows with most of players sidelined, while we expect heavier flows on auction day. Market volume decreased to IDR7.5 trillion and dominated by bonds maturing in over 10 years (38%) and those between 1 and 5 years (29%).