US Treasury yield curve bull flattened amid risk off sentiment triggered by another round of selloff in stock markets following Brexit.

Market Roundup

• US Treasury yield curve bull flattened amid risk off sentiment triggered by another round of selloff in stock markets following Brexit. The 10T yield tumbled to 1.44% (-12bps), approaching the previous low of 1.39% recorded in Jul 2012. Similarly, UK Gilts and German bunds continued to rally, guided by heavy demand for safe-haven assets post Friday’s Brexit referendum.
• While players were reacting to the volatile movement in global markets, upcoming highlight on economic releases will be the 1Q2016 GDP number to be released on Tuesday. Consensus expects a reading of +1.0% qoq in the first quarter.
• USD further strengthened against major rivals, with exception on the JPY. DXY climbed to 96.54, from 95.45 last Friday. USD/JPY consolidated within a lower and narrower range of 101.40-102.40, after the steep decline from the higher end near 106.00 last Friday. Meantime, EUR/USD hovered near immediate support at 1.1000, whilst tested the intraday-low at 1.0970. Next support appears at 1.0800.
• Ringgit denominated government bonds posted little gains, recovering a tad from knee-jerk selling pressure triggered by the Brexit referendum last week. Activities were slanted toward short and medium dated papers, including MGS Jul’16, GII Jul’23 and GII Sep’26. Similarly, IRS rates fell up to 6bps across the curve on Monday.The central bank announced reopening auction for the 30-year MGS, with an issue size of RM2.5 billion. WI was last heard at 4.79/60%.
• Thai sovereign bonds strengthened further, tracking gains in UST, driven by flows to safe-haven assets. Elsewhere, we noted heavier trading interest, as daily volume increased from Bt20.8 billion to Bt22.4 billion. Apart from that, we reckon that the guarded sentiment will aid bonds in the short term, but upside to be capped as we don’t think BoT is now any closer to cut rates. Upcoming focus will be on LB25DA auction scheduled for 29 Jun with a target issue size of Bt16 billion.
• On Monday, Indonesian government bond market opened similar to Friday's closing. However, market was seen biddish on the back of expectation that the tax amnesty bill will be passed by parliament the next day. Actions started not long after market opened, with both local and foreign buyers lifting bonds especially on belly to long end of the curve, pressuring yields lower by 8-11bps. Volume increased to IDR16.2 trillion and was dominated by bonds maturing in over 10 years (54%).