FW: CIMB Daily Fixed Income Commentary - 06 Sep 2017 - Geopolitics lift bonds / IDR bonds rally post auction

 

Market Roundup

• US Treasuries rallied on safe haven demand amid the North Korea-related geopolitical concerns, closing 6-9bps lower on Tuesday after Monday was closed for Labor Day. The missile tests conducted by North Korea occurred over last weekend. Meanwhile, debt ceiling concerns lifted bills rates further (1m bill up to 0.981% on the bid side versus 1.015% for the 3m bills and new auction of the 4w bill drew 1.30% discount rate) as the spread neared to 1bp against 8bps last week). However, prospects for a deal in Congress to fund Harvey relief has lifted chances a deal to lift the debt ceiling.
• USD is showing weakness as we moved into Sep with DXY hovering near 92.265 against >93.5 in last week of Aug as fresh Fed-speak from likes of Brainard and Kashkari pointed to more dovish tone. Overnight weak factory orders also pressured USD though the Jul numbers met expectations.
• Malaysia: MYR govvies were dealt slightly firmer after North Korea launched a hydrogen bomb test during the weekend. Flows were healthy with daily volume totalling RM3.6 billion and scattered across the curve. While we see MYR bonds to remain firm on the back of lower UST yields, upsides may be capped by cautious trading ahead of MPC meeting slated for 7 Sep.
• Thailand: Outright volume surged to Bt174.39 billion on Tuesday due mainly to activities at the front of the curve as risk aversion increased from the. Korean situation causing foreign funds rotation into THB assets and sell-off in KRW assets. The market absorbed all issuance of BoT bonds (CB) for 91-day, 182-day, and 364-day tenors on Sep 5 with aggressive purchase from offshore investors whose net buy position in short-end govvies increased substantially to Bt20.38 billion. (They bought long-term bond at Bt 2.89 billion) Therefore, front-end bonds rallied in risk-off backdrop with last yield of 182-day CB at 1.35%, 7bps lower from prior auction level.
• Indonesia: IndoGB opened unchanged and traded sideways in the morning session before the bond auction commenced. However, the market rallied after auction was closed, as government received very strong incoming bids of IDR56.5 trillion. The issuance was upsized to IDR17 trillion from IDR15 trillion initial target. From three benchmark series that were auctioned (5, 10, and 15 years), bid-to-cover ratio for each series was more than 3x, causing players to chase bonds in the secondary market. Yield curve fell 7-9 bps across the board. Market was dominated by medium to long term bonds.

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