· Lethargic bids. Today’s 7y MGS 8/23 reopening disappointed with a bid/cover of

Results: MGS 8/23 Reopening

·         Lethargic bids. Today’s 7y MGS 8/23 reopening disappointed with a bid/cover of 1.577x despite its slightly lower-than-expected size of MYR3b. Market seemed lethargic and this 7y part of the MGS curve had in fact cheapened approx. 9bps into the auction, yet failed to garner strong interest. Successful yields in the auction averaged 3.483%, tailing the pre-auction WI of 3.475/470. The highest yield was 3.498% and the lowest yield was 3.464%.

·         Our outlook was cut to neutral. In our bond market watch report last week, we lowered our outlook on the MGS market from mildly positive to neutral with an unchanged upward-bias target yield for the 10y MGS at 3.65% by end-3Q16. We took a view that market lacks near-term catalyst to sustain its strength as we rule out a back-to-back OPR cut in September, and the decline in oil price may complicate the Ringgit outlook, which in turn limit foreign flows. The slightly expensive yield levels were susceptible to some correction.

·         Next auction is the reopening of 15y GII 9/30. We estimate a size of MYR1.5b.

Bid to cover:            1.577x

Highest yield:           3.498%

Average yield:         3.483%

Lowest yield:           3.464%

Cut off:                   100%

MGS and GII auction results/supply pipeline 2016