US Treasury yields edged higher on the back of gains in stock markets. However, yields eventually fell alongside the rally in gilts, after the Bank of England governor Mark Carney signaled potential easing following the Brexit.

Market Roundup

• US Treasury yields edged higher on the back of gains in stock markets. However, yields eventually fell alongside the rally in gilts, after the Bank of England governor Mark Carney signaled potential easing following the Brexit.
• PBOC was heard saying it is willing to let Yuan fall to 6.8000 this year, as it hopes to aid economic growth. The PBOC news was reported by Reuters, and Marketwatch said a further decline to 6.8000 represents 4.5% weaker levels already at five-year lows.
• Firm Ringgit coinciding with month-end demand supported Malaysian government bonds on Thursday. Also, players continued to price in possible Bank Negara rate cuts. USD/MYR was seen around 4.0330 late Thursday, compared with levels near 4.1300 after the Brexit vote. However, MYR was momentarily beaten down as PBOC was heard saying it is willing to let Yuan fall to 6.8000 this year (resulting in MYR rising to above 4.0400). Elsewhere, Brent crude was firm also, around $50.15 per barrel.
• We note that the 3-year Ringgit IRS, which was around 3.65% at the start of Jun, has declined to 3.50%. This implies a spread of 25bps against the policy rate of 3.25%. Looking at data, mean spread in the last 5 years is 45bps. At 25bps points, the bond and rates markets are pricing in a Bank Negara rate cut.
• Thai government bonds were mostly steady amid better risk appetite in regional bond markets. However, gains were limited as Thailand released a batch of economic data, which were mixed. Exports fell 3.7% yoy in May but it was a smaller decline versus -7.6% a month before. Meantime, trade balance rose in May but the current account balance fell. Meantime, the country’s foreign reserves fell to $178.8 billion up to 24 Jun from $179.7 billion the week before.
• Indonesian government bond yield curve bull flattened, as buying inflows sustained especially on belly to longer end of the curve. Extending duration looks to be in play. Thursday's news saying that PBOC is willing to let Yuan fall to 6.8/USD this year seems to have little to no effect in Indo govvies. We maintain our positive outlook on the IDR bond market. Market remained big amounting IDR17.8 trillion and dominated by bonds maturing in over 10 years (58%).