US Treasuries weakened early in the trading session upon release of strong economic data but rose to pare earlier movement with crude oil price weakening and equity markets posting losses. The day ended with yield curve flattening as the 2T rose 2bps to 1.19% but the 10T ending unchanged at 2.44%.

Market Roundup

• US Treasuries weakened early in the trading session upon release of strong economic data but rose to pare earlier movement with crude oil price weakening and equity markets posting losses. The day ended with yield curve flattening as the 2T rose 2bps to 1.19% but the 10T ending unchanged at 2.44%.
• The ISM manufacturing index rose to a reading of 54.7 for the month of Dec against earlier consensus of 53.8 and up from Nov reading of 53.2. US construction spending rose 0.9% mom in Nov against +0.5% consensus and +0.6% Oct. We now await the FOMC meeting minutes for Dec 2016 when the Fed hiked rates by 25bps as expected. The next FOMC meeting is scheduled for 2 Feb 2017 with futures trading pricing in only 12.4% probability of a hike. We prefer to think the Fed will wait out this time around before tightening again.
• USD was firmer at the start of the year even before release of stronger-than-expected ISM manufacturing data, but pared gains on profit taking pressure. EUR managed to pare down earlier weakness with EUR/USD now hovering near 1.0407 amid stronger than expected German inflation data. Germany’s CPI was +0.7% mom in Dec against +0.6% consensus (just +0.1% mom in Nov) and France’s CPI was firm but below consensus at 0.3% mom in Dec (consensus +0.5% mom).
• Ringgit sovereign bonds closed mixed early this week. Aside, IRS curve edged higher amid muted market. Meantime, 3-month KLIBOR inched up by 1bp to 3.42%, the first uptick since Nov last year. Aside, the central bank announced reopening auction for 3-year GII, with an issue size of RM3.5 billion, slightly lower than RM4.0 billion we anticipated. WI was last heard at 3.74/62%.
• The first working day of 2017 in Indonesian government bond market opened with a surprise, as MoF held the first bond auction of the year and they did not award 5-year and 20-year series, despite strong incoming bids totaling IDR36.9 trillion for the 5 series. Although primary market generated a lot of demand, the secondary market felt a bit quiet. Market volume was thin on Tuesday totaling IDR5.2 trillion and was dominated by bonds maturing in over 10 years (68%).