CIMB Daily Fixed Income Commentary - 17 Jun 2016

Market Roundup

• US Treasuries closed mixed with the yield curve ending flatter, on the back of mixed economic data and small rebound in markets of riskier assets like stocks.
• The US Dollar went on a bumpy ride Thursday, with the DXY went to as low as 94.205 before rising to as high as 95.318 before now hovering down near 94.384. The Dollar moved with mixed economic data releases and ahead of Brexit fears whilst BoJ also came on board as it held monetary policy on hold, thus boosting the JPY (whilst JPY also receiving a boost as a safe haven currency amid Brexit risks).
• Malaysian sovereign papers were dealt slightly firmer after the Fed decided to maintain FFR at 0.25-0.50% and pared down the tightening pace. Despite that, MYR did not benefit much and USD/MYR continued to hover near 4.1100 late Thursday, pressured by lower oil prices. Meantime, trading activities were slanted towards short and medium dated papers. We reckon sentiment has improved post FOMC but players remain guarded ahead of the upcoming Brexit referendum slated for next week.
• The Malaysian central bank announced it will switch how the MYR reference rate (against USD) will be worked out, by next month. It said it will require domestic contributing banks to provide a quote for the rates to be based on market transactions as opposed to right now which is not necessarily based on actual market pricing. The aim for this is to boost transparency on how the reference rates are calculated.  However, the announcement did not alter movement of MGS trading on Thursday. Longer term, we think this is positive to the overall Malaysian market, to at least show transparency amongst banks’ operations and pricing, in view of past cases of interbank pricing manipulation in Europe.
• THB denominated government bonds posted gains, in line with overnight UST movement, after the Fed signalled to adopt a slower tightening path. Daily volume was thinner at Bt29.8 billion, in contrast to Bt53.3 billion registered a day prior, with flows led by LB206A which was auctioned on Wednesday. Upcoming focus will be on BoT meeting and Brexit referendum scheduled next week.
• In view to stimulate growth, very late on Thursday Bank Indonesia announced it will cut interest rates, whilst taking advantage of expected slow pace of Fed tightening, recently stable movement in the Rupiah, and fast downward trend in inflation. Indonesia government bonds was already buoyed earlier on, due to rosier sentiment with the FOMC signalling a slower pace of tightening policy going forward. However, pace of daily gains were pared as BoJ announced no loosening of policy for the time being.