Tuesday, August 22, 2017

FW: CIMB Fixed Income Weekly Commentary & Strategy - 21 Aug 2017

 

Strategy

  • US Treasuries
    • Long 10y with short term target 2.10%; Short 2y with short term target 1.40% given tight spread over FFR.
    • UST could face some near term consolidation heading towards in the Jackson Hole symposium 24-26 Aug. However, we could see some support from a "dovishly-communicated" balance sheet run-off, and recent weak data especially low inflation numbers.
  • Malaysia govvies
    • Long 5-year MGS with short-term target 3.55%.
    • Short term support comes from sustained outlook for no change in interest rates. Malaysia's 2Q2017 GDP beat expectations but low inflation outlook remains.
    • Long 10-year MGS to reflect benign inflation outlook. The 10-year MGS has lagged declines in shorter tenor MGS since mid-2Q2017, and a 10-15bps rally over the next few months is possible.
    • Further support comes from an upbeat fiscal outlook; if the government's deficit target remains RM40.3 billion in 2017, and 2017 GDP growth at 4-5% of GDP (Bank Negara said growth should be more than 4.8% in 2017 after last week's release of 2Q2017 GDP) then fiscal deficit should be near 3% of GDP and potentially below that psychological level if oil revenues surprise vis-à-vis the official forecast which is quite conservative.
  • Thai govvies
    • Auctions set for demand. After upbeat 2Q17 GDP growth, foreign investors may slow the sell-down of short-term Thai bonds as the Baht may strengthen further with potential below 33.20 key support. Therefore, bills auctions and auction of 2-year BoT198A on Thursday should draw market demand.



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