US Treasuries pared losses posted late last week, supported by buying-on-dips interest

Market Roundup

• US Treasuries pared losses posted late last week, supported by buying-on-dips interest, in conjunction with gains in stock market on Monday. We expect more cautious trade with several economic data releases on tap, particularly on the Aug non-farm payrolls slated for this Friday.
• The Ringgit government bonds were weak, direction mainly guided by overnight UST losses on the heels of hawkish Fed officials’ comments. Heading towards 7 Sep MPC meeting, we prefer short tenor MGS on the front of the yield curve, especially with Jul inflation disappointing. Our short term target for 3-year MGS is 2.82% exit at 2.93%. On the flipside, we prefer to be receivers of 5-year IRS at present levels near 3.45% with short term target 5x5 year swap spread of 25bps.
• Thailand’s government bonds also weakened Monday, with sentiment swayed by the hawkish Fed. However, we also think there was profit taking pressure ahead of various macro data releases and auction of LB366A this week. We raise our medium-term target for 10-year govvies to 2.14% or similar to last week’s close.
• Indonesian government bond market was traded down following Janet Yellen's hawkish comments. The market was very quiet and felt ‘offerish’, with yield curve bear steepening with support seen on 3-5 year bonds. MoF will be holding bond auction today with IDR12 trillion indicative target. We think there will still be healthy demand, although incoming bids could be lower than in previous 2-3 auctions, and players might attempt to bid at higher yields.