US Treasuries continued to weaken as players piled on expectations the Fed will hike interest rates in this month’s FOMC meeting. On top of recent days’ Fed-speak, New York Fed’s Dudley remarked that the case for monetary tightening has become ‘a lot more compelling’. Fed funds futures trading is now pricing probability of an 80% hike in

Market Roundup

• US Treasuries continued to weaken as players piled on expectations the Fed will hike interest rates in this month’s FOMC meeting. On top of recent days’ Fed-speak, New York Fed’s Dudley remarked that the case for monetary tightening has become ‘a lot more compelling’. Fed funds futures trading is now pricing probability of an 80% hike in Mar versus just 52% on 28 Feb. However, macro data was mixed. ISM manufacturing index rose to a reading of 57.7 in Feb from 56.0 the prior month, but personal spending fell to an increase of 0.2% in Jan from +0.5% in Dec, and construction spending fell 1.0% mom in Jan against +0.1% Dec. PCE core inflation numbers met expectation at 1.7% yoy in Jan against +1.7% in Dec.
• Malaysian sovereign bonds posted losses as IRS curve rose, reacting to the rise in UST yields. Secondary market trading was heavy, with daily volume totaling RM3.9 billion, compared to RM2.2 billion registered a day prior. Pending MPC meeting outcome, Ringgit govvies may see short term pressure alongside weakening UST.
• Thai LB curve bear-steepened as intermediates and long-ends rose 2-4bps alongside increase in  5-year LB226A supply. The auction of Bt25 billion LB226A drew market demand at 1.96 times bid-to-cover and average bidding yield at 2.242%, in line with our expectation. Thailand's headline CPI grew by 1.44% yoy in February, slower than prior month of 1.55% yoy. Price increase last month comes from similar factor of pick up in energy price but core CPI remains stagnant at +0.49% yoy. This indicates subdued demand- pull price pressure (and containing inflation risk). Thus, we expect the MPC to keep policy rate unchanged at 1.50% on March 29.
• Indonesian sovereign yield curve went up in line with UST movement. In general, bond market was quiet though, with strong support from local players. Feb CPI data was released on Wednesday, +0.23% mom (+3.83% yoy), a bit lower than market expectation +0.30% mom (+3.90% yoy). Market was dominated by bonds maturing in between 1 and 5 years and bonds maturing in over 10 years. Market volume increased to IDR21 trillion.