FW: CIMB Daily Fixed Income Commentary - 22 Aug 2017 - Regional bonds firm / We're positive on USD / Awaiting Jackson Hole

 

Market Roundup

• US Treasuries were traded sideways and closed marginally firmer, as there was little drivers in the market. The 10T closed at 2.18%, continued to hover near the 1-month low at 2.16, amid cautious sentiment weighed by lower crude oil prices on Monday. Apart from Jackson Hole gathering, highlights this week will be data on tap, including new home sales, jobless claims, durable goods orders and wholesale inventories.
• We remain long 10y UST at 2.10% target before profit taking pressure kicks in as yields have dipped below short and long term moving averages. Furthermore, incumbent signs of Dollar strength and continuous geopolitical noises will remain supportive to safe haven demand. We short 2y as the spread versus FFR is pretty tight while the balance sheet run-off rhetoric may soon spook the short-end of the curve.
• We remain positive on USD and yesterday's move represents opportunity to pick up USD against EUR. USD move was largely technical and other asset classes did not follow suit indicating an overselling of USD. Although sentiment over USD remains somewhat negative owing to the Fed sanguine view on inflation and political problems, the fact remains that the recent string of US data has been good despite little help from the government. The Fed while remaining cautious is on track with its gradual rate hike stance and Republicans will soon have to deliver to protect their position. We expect USD to steadily gain over the coming months. As for today, markets would be within recent ranges with data uninspiring while markets wait on the Jackson Hole comments.
• Malaysia: MYR sovereign yield curve steepened, with gains slanted towards shorter dated papers. From channel checks, foreign players showed better net buying interest, in conjunction with the firmer MYR, but gains were capped by local profit taking activities on Monday. Meanwhile, the 10-year MGS was capped below 4.00%, supported by benign inflation outlook and sustained outlook for no change in rates.
• Thailand: Yields fluctuated in a tight range as the market waited for Fed and ECB policy comment at Jackson Hole. We shift our opinion towards cautious trade on short-end T-Bill and BoT bonds due to the flip in the sentiment after the BoT announced to seek cooperation from commercial banks to provide information on fx deals in a bid to curb Baht speculation. Foreign investors returned to net-buy position of Thai bonds at Bt889 million after firm GDP data as they looked into buy short-ends about Bt1.56 billion in the AM session before unloading short-ends in the PM session after the BoT announcement, causing net sell in short-end at Bt1.94 billion and net-buy in long-term bond at Bt2.83 billion. Demand wise, front-ends demand also softened as the auction of 91-day and 182-day T-Bill received with long tail with high yield at 1.222%and 1.40%, respectively and the selling of Bt15.0 billion 182-day T-Bill was absorbed only at Bt5.4 billion from the market.
• Indonesia: IndoGB were biddish ahead of bond auction and BI meeting. Although consensus still expect 7-day reverse repo rate will be unchanged, market is preparing for chance of BI conducting some easing measures. Some buying flows were seen in 5- to 10-year tenors, while offers appeared to be thin on the 5-year bucket. MoF will be holding bond auction with IDR15 trillion target, where the auction bonds will be 3- and 12-month SPN bills and 10-year FR59, 15-year FR74 and 21-year FR75 benchmark series.

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