FW: CIMB Daily Fixed Income Commentary - 23 Aug 2017 - Bank Indonesia cuts interest rate / Change on fiscal front in Washington?

 

Market Roundup

• US Treasuries weakened with the 10T hovering just above 2.20% overnight amid some positive developments on the fiscal front. A Politico report suggested that White House and congressional leaders have found some common ground on how to fund reductions in individual and corporate taxes. Still, a fresh tax plan is not concrete at the moment with Trump faced with other stress in his administration. Meanwhile, Treasury secretary Mnuchin and GOP senate leader McConnell indicated confidence the debt limit would be lifted before the 29 Sep deadline.
• Bank Indonesia surprised with a 25 basis point cut to 4.50% extending the six rate cuts they had done last year. It also lowered the deposit and lending facility rate by 0.25% to 3.75% and 5.25% respectively. The central bank believes there is room to cut rates due to the low inflation projected for 2017 and 2018 and with the current account deficit under control. It also indicated that risks relating to Fed rate hike and balance sheet unwind had diminished resulting in local rates remaining comparatively attractive. (Source: http://www.bi.go.id/en/ruang-media/siaran-pers/Pages/sp_196417.aspx)
• Malaysia: Bonds extended gains, aided by low UST yields, while we suspect there was net foreign inflows pressuring USD/MYR lower to 4.2825 on Tuesday. Daily trading volume edged lower from RM2.9 billion to RM2.3 billion, with flows led by MGS Sep'24 and Feb'21, and GII Jul'22. Foreign reserves climbed to $100.4 billion as at 15 Aug, from $99.4 billion two weeks prior. The amount was able to fund 7.9 months of retained exports and is equivalent to 1.1 times of short term external debts.
• Thailand: Govvies curve bear-steepened mainly by local trading flows among financial institutions in light macro day. Short-end sentiment worsened due to concerns about BoT attempt to prevent speculation on the Baht, and thus auction of 91-day and 182-day CB bonds drew weak demand with average yield at 1.2219% and 1.4366%, respectively. Even foreign investors bought short-term and long-term bonds at Bt1.11 billion and Bt702 million, pending sell-interest in the short-ends. As curve is steep at the 10-year, real investors appeared to have interest in LB25DA -  attractive at 2.314%(+5bps from previous day).
• Indonesia: BI unexpectedly cut its policy rate to 4.50% on Tuesday which should aid sentiment rest of the week. Aside IndoGBs were traded up on auction day Tuesday, and investors looked eager to buy benchmark bonds in every tenors. The buying activities set the tone for a very good auction, as the government received IDR46.3 trillion incoming bids, and issued "only" IDR15 trillion as per their initial target, and elected not to upsize the issuance.

*****************************************************************************************************************