US Treasuries &
Asian Dollar-denominated Bonds
Despite the Fed held FFR unchanged at 0.25-0.50% in the latest FOMC meeting, we think the Fed sounded slightly hawkish, leaving the door open to further rate hikes, meaning that the actual interest rate adjustment path will be data dependent. Also, policymakers downplayed the concerns over ‘global economic and financial developments’, which may imply that they are actually more hawkish than market expectation.
In the short term period, we think US Treasuries will remain well supported, as there is no clear sign of significant improvements in economic activities, with exception the labor market conditions continued to be healthy. Meanwhile, we see support for the 10T near 1.75% for now. Upcoming highlight will be this Friday’s Apr non-farm payrolls data release (consensus is +200k versus +215k in Mar).
Malaysian Bond Market
Ringgit government bonds have shown firm performance since early this year, aided by stabilizing Ringgit and firmer oil prices, while sentiment was most recently lifted by announcement of Dato’ Muhammad Ibrahim as the new Bank Negara governor. However, gains were pared amid light correction late Apr.
Despite sentiment remaining steady, we are slightly cautious at this juncture, with Brent crude oil headed lower after touching the recent high at $48.50/bbl, and USD/MYR stuck near the psychological level of 4.00, which may eventually exert selling pressure on the bond market.
As for the upcoming MPC meeting slated for 19 May, we reckon that the central bank will stand pat and continue its accommodative policy stance. Our economists maintain the earlier call for a 50bps cut in OPR in the second half of the year, but only assuming a stable global financial market (less pressure on Ringgit), inflation to ease significantly in 2Q2016, and disappointing global economic growth.
Thai Bond Market
THB denominated bond market is expected to see cautious trading ahead of the MPC meeting on 11 May. We expect some consolidation in the near term, as players are likely to remain at the sidelines awaiting clearer directions from BoT stance. Our economists see potential for BoT to cut policy rate down to 1.00% by year-end from current 1.50%. However, consensus is BoT will not cut at the upcoming MPC meeting, whilst we think policymakers are more likely to adopt wait-and-see stance after improvement seen in selective economic data releases. We expect the yield curve to steepen a tad amid profit taking pressure on the longer dated papers.
On the other hand, we reckon there will be support for bonds from the light primary market schedule in May. The reopening auction of LB666A will be the sole issue slated for the month, with an indicative size of Bt10 billion.
Indonesian Bond Market
We expect the bond market to continue to rally in May on the heels of deflationary month-on-month numbers in Apr and expectations of a BI interest rate cut. Stable Rupiah and USD bearish tone in global foreign exchange market should also be positive for the bond market.
Just recently released, we noted inflation fell to +3.60% yoy in Apr from 4.45% in Mar. Core inflation was +3.41%, or the lowest since data was collected back in 2003. Month-on-month, we noted the deflationary reading of -0.45% due to significantly lower transportation and food prices. Inflation is projected at +3.35% yoy in May assuming monthly inflation of +0.25%. Inflation pressure should be higher during fasting month (holidays and new school year in Jun-Aug). Meanwhile, USD/IDR may trade 12,800-13,250 in May. The Rupiah is anticipated to be supported by the improving current account levels, falling inflation and improving commodity price. USD bearish trend is also helping Rupiah.
Expectations of stronger economic growth will help in narrowing the government budget deficit, which will help bonds, despite the weaker-than-expected 1Q2016 GDP release. The government’s budget deficit target for 2016 is 2.15% of GDP but may also widen to 2.5% due to lower government revenue. Full-year gross government borrowing is targeted at IDR556.06 trillion. And the government has plans to issue about IDR40 billion in fresh borrowings in May (comprising regular auctions and retail saving bonds). 1Q2016 GDP was 4.92% yoy against +5.07% consensus. Quarter-on-quarter, Indonesia’s GDP contracted by 0.34% versus consensus of -0.22% but firmer versus -1.83% the previous quarter.
Despite the Fed held FFR unchanged at 0.25-0.50% in the latest FOMC meeting, we think the Fed sounded slightly hawkish, leaving the door open to further rate hikes, meaning that the actual interest rate adjustment path will be data dependent. Also, policymakers downplayed the concerns over ‘global economic and financial developments’, which may imply that they are actually more hawkish than market expectation.
In the short term period, we think US Treasuries will remain well supported, as there is no clear sign of significant improvements in economic activities, with exception the labor market conditions continued to be healthy. Meanwhile, we see support for the 10T near 1.75% for now. Upcoming highlight will be this Friday’s Apr non-farm payrolls data release (consensus is +200k versus +215k in Mar).
Ringgit government bonds have shown firm performance since early this year, aided by stabilizing Ringgit and firmer oil prices, while sentiment was most recently lifted by announcement of Dato’ Muhammad Ibrahim as the new Bank Negara governor. However, gains were pared amid light correction late Apr.
Despite sentiment remaining steady, we are slightly cautious at this juncture, with Brent crude oil headed lower after touching the recent high at $48.50/bbl, and USD/MYR stuck near the psychological level of 4.00, which may eventually exert selling pressure on the bond market.
As for the upcoming MPC meeting slated for 19 May, we reckon that the central bank will stand pat and continue its accommodative policy stance. Our economists maintain the earlier call for a 50bps cut in OPR in the second half of the year, but only assuming a stable global financial market (less pressure on Ringgit), inflation to ease significantly in 2Q2016, and disappointing global economic growth.
THB denominated bond market is expected to see cautious trading ahead of the MPC meeting on 11 May. We expect some consolidation in the near term, as players are likely to remain at the sidelines awaiting clearer directions from BoT stance. Our economists see potential for BoT to cut policy rate down to 1.00% by year-end from current 1.50%. However, consensus is BoT will not cut at the upcoming MPC meeting, whilst we think policymakers are more likely to adopt wait-and-see stance after improvement seen in selective economic data releases. We expect the yield curve to steepen a tad amid profit taking pressure on the longer dated papers.
On the other hand, we reckon there will be support for bonds from the light primary market schedule in May. The reopening auction of LB666A will be the sole issue slated for the month, with an indicative size of Bt10 billion.
We expect the bond market to continue to rally in May on the heels of deflationary month-on-month numbers in Apr and expectations of a BI interest rate cut. Stable Rupiah and USD bearish tone in global foreign exchange market should also be positive for the bond market.
Just recently released, we noted inflation fell to +3.60% yoy in Apr from 4.45% in Mar. Core inflation was +3.41%, or the lowest since data was collected back in 2003. Month-on-month, we noted the deflationary reading of -0.45% due to significantly lower transportation and food prices. Inflation is projected at +3.35% yoy in May assuming monthly inflation of +0.25%. Inflation pressure should be higher during fasting month (holidays and new school year in Jun-Aug). Meanwhile, USD/IDR may trade 12,800-13,250 in May. The Rupiah is anticipated to be supported by the improving current account levels, falling inflation and improving commodity price. USD bearish trend is also helping Rupiah.
Expectations of stronger economic growth will help in narrowing the government budget deficit, which will help bonds, despite the weaker-than-expected 1Q2016 GDP release. The government’s budget deficit target for 2016 is 2.15% of GDP but may also widen to 2.5% due to lower government revenue. Full-year gross government borrowing is targeted at IDR556.06 trillion. And the government has plans to issue about IDR40 billion in fresh borrowings in May (comprising regular auctions and retail saving bonds). 1Q2016 GDP was 4.92% yoy against +5.07% consensus. Quarter-on-quarter, Indonesia’s GDP contracted by 0.34% versus consensus of -0.22% but firmer versus -1.83% the previous quarter.
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