US Treasuries weakened with yields up around 5bps as the stock market rallied to an all-time high while sentiment was guarded ahead of more economic data due this week. And this came despite increasingly protectionist and isolationist signals from Trump. The 10T rose 4bps to above 2.50% at 2.51%.

Market Roundup

• US Treasuries weakened with yields up around 5bps as the stock market rallied to an all-time high while sentiment was guarded ahead of more economic data due this week. And this came despite increasingly protectionist and isolationist signals from Trump. The 10T rose 4bps to above 2.50% at 2.51%.
• USD continued to tread lower in what is still seen as a consolidation phase after it rallied with DXY reaching above 103.00 early Jan. Expected to support USD though maybe in the medium to longer term period is the proposal of the ‘border adjusted’ destination-based cash flow tax. The DBCFT as understood to be part of the GOP tax reform proposal includes lowering the tax rate, allowing expensing off capital investment (rather than depreciation) and businesses no longer need to pay tax on profits they earn abroad. The ‘border adjusted’ part means tax is levied based on where the goods are consumed.
• In Ringgit sovereign bond market, focus was on the RM4.0 billion auction of new 10-year GII, which saw heavy demand, reflected by a bid-to-cover ratio of 3.41 times. Average yield at the auction was 4.258%, within a spread of 4.245-4.265%, a tad higher than WI 4.24/23% quoted a day prior the tender closing. Despite the strong result in primary market, secondary trading in Ringgit bonds pared gains, as sentiment turned guarded with UST yields edging higher along with firmer USD. Notably, 3-month KLIBOR inched up 1bp to 3.43%, the second uptick in 2017.
• Thai government bond yields shifted higher as part of recent Treasury rally and increasing long-term bond supply. The auction of Bt8.0 billion 20-year LB366A was absorbed by market demand especially local asset management companies at 1.35 bid-to-cover ratio and 3.32-3.38% bidding range, in line with our expectation. Compared with the previous seven auctions since Nov 18, 2015, this 20-year reopening auction of LB366A was the cheapest and average yield recorded was 3.3625%, +65.87bps from the last auction on Nov 2, 2016 as global sentiment turned to normalizing cycle backed by Fed rate hike outlook and Trump tantrum. The 20-year yield rose as much as 7bps to close at 3.32% on Wednesday. The swap market traded up 2-4bps across the curve, tracking the bond market. However, the 5-year IRS still appeared sticky at 2.15%-2.25% range awaiting new directional factors.
• Indonesian govvies opened unchanged and traded in tight range in low volume in the early session on Wednesday. However, activities picked up in the afternoon session with some profit-taking pressure and possible position trimming ahead of Chinese New Year this weekend. Still, the market was well-supported, as locals took opportunity to buy at bargains. The market was dominated by bonds maturing in over 10 years (43%) and between 5 and 10 years (29%).