US Treasuries continued to weaken with short tenor 2-year yields trekking to its highest since 2009 on heightened expectations the Fed will hike interest rates this month and Trump reiterated his pledge for tax cuts and fiscal spending. The surge in hikes expect

Market Roundup

• US Treasuries continued to weaken with short tenor 2-year yields trekking to its highest since 2009 on heightened expectations the Fed will hike interest rates this month and Trump reiterated his pledge for tax cuts and fiscal spending. The surge in hikes expectations this month comes as several Fed officials hinted as such in recent days. Most recently, Fed governor Jerome Powell said the argument for a Mar hike has ‘come together’, after also this week governor Lael Brainard hinted it was soon appropriate ‘to remove additional accommodation, continuing on a gradual path’.
• USD strengthened with the dollar index up to 102.23 as traders price in Fed rate hike expectations at this month’s FOMC meeting and Trump reiterating his pledge for tax cuts and fiscal spending. EUR/USD is down towards 1.0514 this morning amid dollar strength. The Euro Zone CPI was +2.0% yoy in Feb, which met consensus expectations, up from +1.8% yoy in Jan, but core inflation was a pretty low 0.9% yoy in Feb (+0.9% Jan). Short term horizon, there is further potential upside for USD with resistance appearing around the 103.3 level.
• Ringgit denominated sovereign bonds further weakened Thursday, as sentiment remained weighed by rising UST yields amid increased expectations of a Fed hike later this month. Short term volatility is likely to persist, ahead of further news on Trump’s budget plans and FOMC meeting slated by mid of this month.
• Bank Negara Malaysia held the OPR at 3.00%, in line with our and consensus expectations. The MPC statement noted continued improvements in the global economy and highlighted evidence of a recovery in global trade. Our economist expects the OPR to remain at 3.00% in 2017.
• Despite selloff in US Treasury, Thai bonds did not significantly react to the risk-on sentiment. LBs rose only 1-2bps within 5-6-year tenors while yields in other tenors were pretty stable. Vigorous trading was in the swaps market with significant increase in 6-month Libor to 2017-high at 1.3749% due to higher chance of Fed rate hike in Mar propped up 6-month THBFIX to 1.59% and front-end IRS (1-3-year tenor) shifted higher accordingly. At this point, we bias on bear-flattening THB IRS curve basing on further room for rise in 1- and 3-year THB IRS rate and we target the swap rate at 1.65% and 1.95%, respectively within 1-week target or ahead of the FOMC meeting horizon.
• IndoGB rallied on Thursday on the back of net buying flows post-Trump speech. Activities were heavy on the bellies to long end of the curve, and all benchmark series were traded stronger. Players also keen to bid off-the-runs in those buckets. We remain confident that IndoGB will continue its positive tone today. Total volume fell to IDR14.2 trillion and dominated by bonds maturing in over 10 years (48%).