US Treasuries further strengthened as players continued to price out near term possibi

Market Roundup

• US Treasuries further strengthened as players continued to price out near term possibility of Trump’s tax agenda coming back on track. Yields fell 1-3bps but recovered from daily lows – the 5T fell to as low as 1.88% before rising to close at 1.92% from 1.95% prior day’s close. The daily low came as equities markets tanked but as those markets recovered UST yields rose from lows.
• USD showed some recovery against Asian currencies. USD/MYR was hovering near 4.4165 this morning and USD/IDR at 1.3311. MYR gained yesterday hitting the best levels since Nov on the back of dollar declines in morning trading in reaction to the repeal failure.
• Current talk is Malaysia’s inflation is likely to rise after Feb’s 4.5%. But we maintain that economic growth remains at risk given external uncertainties (such as rising doubts over Trump’s fiscal plans) and continued risk to domestic demand. This means talk of a rate hike is premature. CIMB’s house view remains the OPR to stay at 3.00% till end-2017.  We believe Bank Negara will tolerate inflation at levels below 4%, as drivers are mainly cost-induced.
• We’re watching sentiment post UST rally and impact from the strong Feb CPI. The 10-year MGS is again near its lowest since the Trump trade, and USD/MYR is down and swap rates a tad lower. That said test of 4.00% in the short term period is possible. However, we don’t expect levels to sustain below that big figure.
• Thai bonds bull-flattened as mid-to long-ends dipped 2-4bps on expectation of delayed US fiscal stimulus. The 5- to-10-year govvies posted solid gains, catching up with UST. Foreign investors bought both short- and long-term bonds at net Bt2.53billion and Bt2.82billion, respectively. LB226A was in top-five most heavily traded due to local and offshore interest and bids ended at 2.21% from supportive supply story. But we expect limited downside and net selling pressure at 2.20% may act as cushion.
• Secondary market for Indonesia government bonds was generally quiet as focused turned towards the auction. Demand at the day’s auction remained solid as total bids reached about IDR33.9 trillion. The government upsized the issuance to IDR18.65 trillion from the IDR15 trillion target but still the market was traded up post auction. The award yield is line with current market level, and some participants tried to cover through secondary market post the auction. Total volume leaped to IDR21.1 trillion and dominated by bonds maturing in over 10 years (64%).