US Treasuries weakened with yields up about 4bps across the curve but coming alongside selloff in stock markets – which point to cautious mood amongst players after recent firm

Market Roundup

• US Treasuries weakened with yields up about 4bps across the curve but coming alongside selloff in stock markets – which point to cautious mood amongst players after recent firm economic data and hawkish Fed-speak. Also, recent upticks in crude oil prices (despite a late pullback on Tuesday) helped to anchor the UST yields at the higher ranges since Jun this year.
• Malaysian government bonds extended losses, pairing with higher IRS curve and weaker Ringgit. Secondary trading saw heavier flows totaling RM4.4 billion, higher than RM1.0 billion recorded a day prior. We think that the persistently weak Ringgit may further pressure bonds in the short term period. Meantime, the 10-year GII reopening auction was announced with an issue size of RM3 billion. WI was last heard at 3.78/77%.
• Elsewhere, foreign holdings in Malaysia’s long term government securities fell marginally by RM0.9 billion in Sep, the first decline since Oct 2015, partly explained by maturity of MGS papers. However, percentage wise, foreign holdings in government bonds edged higher from 35.9% to 36.2%.
• Thai sovereign yield curve further steepened, in conjunction with higher IRS rates and lower stock prices, due to risk-off sentiment. Flows were heavier at Bt17.4 billion (compared to Bt14.5 billion on Monday), led by shorter dated LB196A and LB226A. We reckon the weak sentiment may pressure the curve to steepen further in the near term, alongside the supply from LB316A auction on 12 Oct.
• Indonesian government bond market was generally quiet and opened lower with wider bid/offer spread. It looked like market was anticipating weak demand for the upcoming bond auction, but the yield curve fell 2-5bps before the auction window open. Meanwhile, offshore names were seen pushing the long end down. Auction result came out with weak demand; IDR12 trillion incoming bids and lower than average bids IDR21 trillion and asked higher yield. Market calmed down after government cut the issuance to IDR6.15 trillion from the IDR12 trillion initial target. Volume increased to IDR10.3 trillion and was dominated by bonds maturing in over 10 years (48%).