Government Bond Auction Results_20160530

Results: MGS 11/21 New Issue

·         Weak demand. Today’s 5.5y MGS 11/21 new issue drew a rather disappointing bid/cover of 1.42x on an expected MYR4b size. This is the lowest BTC since Dec 2014. WI weakened 3-5bps into the auction with actual results printing a high and average of 3.64% and 3.62% respectively, tailing the pre-auction WI of around 3.61/60.

·         Bids shy away amid external uncertainty as the momentum of USD strength was rejuvenated by the Fed Chair Yellen and other FOMC members talking up the US rate hike in the summer months. The probability of hike by July rose to ~54% from ~17% two weeks ago.

·         Adding pressure to the curve is the recent MGS supply which totalled MYR8b in the past 1 week or so from the back-to-back auctions of the new 10.5y and 5.5y MGS. Some of the demand especially those from fast money accounts may have been consumed by the prior 10y MGS auction.

·         Next auction is the reopening of 10y GII 9/26. We estimate a size of MYR3.5b.

Bid to cover:            1.420

Highest yield:           3.640%

Average yield:         3.620%

Lowest yield:           3.594%

Cut off:                   100%