CIMB Daily Fixed Income Commentary - 30 May 2016

Market Roundup

• US Treasury yields rose across the curve driven by positive 1Q2016 GDP data, alongside the latest Fed chief Janet Yellen’s remark, which pointed to a possible rate hike in coming months, if economic conditions continue to show improvement.
• The second reading of 1Q2016 GDP came up to +0.8% versus consensus reading of 0.9% but higher versus from 0.5% earlier reading. Nonetheless, the revised reading appears to be relatively weak due to the seasonal factor, compared to 1.4% registered in Q42015. In the coming week we have personal spending, ISM manufacturing, and ADP jobs leading up to the May non-farm payrolls to be release Friday. Consensus for May NFP is 160k or similar the Apr number. With the changing sentiment post remarks by Yellen, we expect UST movement to be weak though after some consolidation on month-end demand.
• Ringgit denominated government bonds posted little gains, in conjunction with pullback in USD/MYR ahead of the weekend. We reckon sentiment remains relatively weak, pressured by recent weakness in Ringgit as well as hawkish remarks made by Fed officials. Tender closes today for the new 5-year MGS (MGS Nov’21) auction worth RM4.0 billion . WI quotes for were last heard near 3.57/54%. Existing 5-year MGS (MGS Oct’20) was dealt at 3.44% (-1bps).
• Thai sovereign bonds further weakened on the back of persistent net selling pressure. Elsewhere, daily transactions were muted at Bt10.4 billion, in contrast to Bt21.3 billion recorded a day prior.
• Indonesia government bond market traded up, in line with strengthening of Rupiah to 13,580. Supply looks thin, and it seems like players are a bit reluctant to do volume transactions before Yellen’s speech on Friday night. However, we spotted bids a bit aggressive on the 10-yearr FR56. We think signal from Yellen will be a major catalyst for this week. Market volume decreased to only IDR7.6 trillion and dominated by bonds maturing in over 10 years (58%).