Tepid auction bid. Today’s 5y MGS 11/21 reopening drew a tepid bid/cover of 1.67x on an expected MYR3b size. Successful yields averaged 3.256%, north of the

Results: MGS 11/21 Reopening

·         Tepid auction bid. Today’s 5y MGS 11/21 reopening drew a tepid bid/cover of 1.67x on an expected MYR3b size.  Successful yields averaged 3.256%, north of the pre-auction WI of around 3.25/24. The cut-off yield was 3.273% and the lowest yield was 3.240%. This part of the MGS curve had cheapened 7-8bps this week leading up to the auction, yet investors prefer to bid wide amid uncertainty on the timing of US rate hike and the resurgence of USD strength.

·         Near-term outlook less sanguine. Bond market outlook seems to have turned less sanguine. If the Fed surprises with a hike in September’s FOMC meeting, which is currently viewed by market as unlikely at only 22% probability, both the UST yields and USDMYR may be re-priced higher which in turn could weigh on MGS. Our long-held forecast yield for the 10y MGS is unchanged at 3.65% by end-3Q16.

·         Next auction is the reopening of 20y GII 10/35. We estimate a size of MYR2b.

Bid to cover:            1.670x

Highest yield:           3.273%

Average yield:         3.256%

Lowest yield:           3.240%

Cut off:                   100%