FW: CIMB Fixed Income Weekly - 25 Sep 2017

 

US Treasuries

• The curve was lifted and USD rose post FOMC which signaled a Dec hike and start of balance sheet reduction in Oct.
• However, unlike media reports we don't see the Fed as being overall hawkish. Primarily, we remain unsure of the US inflation trajectory.
• The fresh dot-plots, though implying a Dec 2017 rate hike, shows a move lower in 2018. For example, two dots at 1.0-1.25% range (meaning no hike at all in 2018, and this was only one dot at the Jun 2017 FOMC).
•  10y UST yields headed south. The 10y UST could head lower to 2.15-2.20% as the recent profit-takers start easing off.

Malaysia

• Narrowing relative value on 5-7y GII. We had indicated relative value on the 5y GII and the 5y/5y MGS versus GII spread narrowed to 19bps against 21bps a week ago.
• As for Malaysia's CPI, although higher than expected in Aug, and our economist has raised the full-year 2017 inflation forecast to 3.8% from 3.5% previously, the OPR forecast is maintained, seeing that cost-push price pressures could wane in coming months. Core inflation remains benign (core inflation a slower 2.4% in Aug versus +2.6% in Jul) which reflects the slack in the economy at this point.

Indonesia

• 10y govies' yields may decline. Though net selling pressure could heighten post-FOMC, we expect sustained demand as a response to the BI cut, which could bring 10-year govies yields down towards 6.30%.
• Bank Indonesia continued cutting the 7-day reverse repo rate to 4.25% from 4.50%. The central bank said low inflation and the small current account deficit were the main reasons for the rate cut. Of note, Indonesia's core inflation in Aug was below the lower band of BI inflation target of 3.0% yoy.

Thailand

• 5y govvies appear attractive near last bids of 1.65%, or 20bps and 10bps spread against the 3y and 4y tenors respectively, and +15bps over the policy rate. 1.60% appears achievable.