FW: Bond Market Watch_20171031

 

 

Bond Market Watch: Stay on the sidelines

 

Malaysia: Stay on the sidelines

Maintain at mildly bearish. MGS yields pulled back partly from the selloff but the curve is still higher and steeper since our last review. Several auction tails with the 30y MGS 3/46 cutting at 5-handle had caused the ultra-long sector to re-price higher. While recent news suggesting Jerome Powell as a front runner for Fed Chair may mean Fed continuity, it doesn’t alter our view of Fed rate hike could be faster than current market pricing. The remaining 4 out of 5 auctions concentrate in 10y to 15y bracket and this may open up room for the sticky 10y to re-price. We prefer to stay on the sidelines at this point of the year and reiterate our target for 10y MGS yield at 4.10% by end-4Q17.

 

China: Liquidity injection alleviates curve pressure

Maintain at mildly bearish. Concerns over tighter regulatory supervision amid efforts to deleverage and contain financial risks, especially after the party congress, prompted selloffs in the CGB market with the curve slightly inverted along the 5y10y. Upward move on the curve, however, will likely be contained through liquidity injection in order to prevent it from evolving into a disorderly selloff that might cause systemic risk. Monetary policy tone will likely remain to be stable and neutral. We maintain our mildly bearish outlook on CGB and continue to hold an upward-biased view on the curve at a controlled pace.

 

Indonesia: Domestic factors supportive, cautious on external risks

Maintain at neutral, but monitor foreign positioning risk. Domestic factors remain supportive on expectation of resilient economic growth, narrowing current account deficits, stable inflation, a supported USDIDR as well as limited supply risk as issuance has achieved 89% of this year’s target. Key risks will primarily be externally driven. Near term, we think the 10y IndoGB yield is fair in the region 6.70-6.90% but is vulnerable to foreign outflow risks given its high foreign positioning.

 

Singapore: Cautious on elevated funding rates

Lower to mildly bearish from neutral. With the US Fed expected to deliver another 25bps FFR increase in December, the stay of MAS neutral monetary stance for the rest of the year diminishes support for SGD funding rates, in our view. Domestically, liquidity may tighten around year-end posing upside risks to short-term SGD rates. With these upside risks in mind, we turn mildly bearish on SGS. Key risks to our view are the upcoming US inflation/labour data disappointments which could extend USD weakness and keep global yields anchored.

 

Thailand: Hold steady

Maintain at neutral. No change in the policy rate expected given benign inflation and firm economic growth and other factors continue to be supportive with moderate incoming supply in November (net increase +THB30b) and wider current account surplus supporting the Thai Baht. Risks to our view remain a return of political uncertainty in the run-up to the election in Nov 2018 and monetary tightening in DMs possibly triggering outflows from EM debt.