CIMB Daily Fixed Income Commentary - 25 May 2016

Market Roundup

• US Treasuries weakened on the back of improved risk sentiment amid gains in both oil and stock prices, in conjunction with anticipated primary supplies this week.  New home sales in Apr recorded at 619k, way above consensus 532k. 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.
• The US Treasury Department sold $26 billion worth of 2T on Tuesday. Demand was very strong, indicated by the highest direct bids since Oct 2012 of 32.5%. Overall bid-cover ratio was 3.0 times, in contrast to a low 2.64 times recorded in prior similar auction a month ago. High yield was generated at 0.92%, whilst indirect bidders accounted for 49.8% of the sales, higher than 47.1% garnered in the previous auction.
• Released on Tuesday, the minutes from the Fed’s discount rate meeting revealed that four Fed banks were advocating a hike in the discount rate in Apr, up from two in Mar. The Fed held the discount rate last month at 1.0% and its main benchmark interest rate unchanged at the policy meeting Apr 26-27.
• Ringgit govvies were under net selling pressure amid weaker Ringgit (USD/MYR hovered at 4.12 late Tuesday). Meantime, we heard domestic players trimmed positions from previous day’s auction, sending the new 10-year MGS yield higher by about 3bps to 3.91%.
• Thai sovereign yield curve steepened on the back of net selling interest seen on longer end. Meanwhile, USD/THB climbed to near 35.75 late Tuesday, exerting pressure on Thai bonds. Despite that, we expect to see some dip-buying interest to emerge post recent heavy selloff.
• In general, Indonesian government bonds weakened amid risk-off sentiment on auction day, as some players used the opportunity to sell bonds prior to auction and buy back during auction. Market was well supported post-auction due to downsized issuance to IDR9.9 trillion from IDR12 trillion initial target, while incoming bids reached IDR14.7 trillion, transactions post-auction especially centered on the 10-year FR56 and shorter dated papers with tenors of 3- to 5-year. We think bond market movement will still be dependent on external news (Brexit and FOMC). Aside, trading volume doubled on Tuesday to IDR17.4 trillion and dominated by bonds maturing in over 10 years (59%) and between 1 and 5 years (23%).
• Asian dollar credits widened a tad, as highlight remained on the heavy primary pipelines. In sovereign space, Indo Jan’46 was dealt weaker at 112.27pts, down from 112.89pts, whilst Mongolia Apr’21 edged lower from 103.91pts to 103.74pts.