FW: CIMB Fixed Income Weekly - 27 Nov 2017 - Heavy drivers for bonds this week

 

 

US Treasuries

• Focus this week will be on Fed-speak including Yellen's testimony to the Joint Economic Committee. Powell's confirmation hearing is scheduled for Tuesday. Make-or-break vote on the tax bill at the Senate is also this week. Data for release includes new home sales, second reading of 3Q2017 GDP (preliminary was 3.0% annualized qoq), Oct's core PCE (consensus 1.4% yoy and 0.2% mom), personal income and spending, as well as Nov's ISM manufacturing (consensus 58.3 versus 58.7 in Oct).
• Still expect spreads to widen. If there would be no glitch in Powell's progress to Fed chair and Senate passes its version of the tax bill then some mild weakening of UST should be expected, mainly due to profit-taking activity and consolidation. We expect 2x10 spread at 60-65bps.

Malaysia

• With MYR still firm around 4.1155, we expect only mild-profit taking pressure and mostly from offshore, whilst we anticipate locals to support the market if yields show upward pressure.
• We expect 5x5 swap spread to gap tighter to around 15bps after last week's surge.

Indonesia

• Relatively low and stable domestic inflation, contained policy risk, and attractive yields are likely to support bonds in the medium term horizon. Meantime, improving current account balances should also be positive for domestic bonds. However, net selling pressure could appear ahead of Fed's interest rate increase in Dec. Nevertheless, this week we expect bonds to remain supported (alongside firm IDR), expecting 10y bond around 6.40%.

Thailand

• Nov 2017 CPI data (due 1 Dec) is likely to display rising inflation to near 1.00% yoy amid improving oil and fresh food prices. We bias on the upside for bond yields this week.
• Bond and IRS curves along 2-5y segments look steep with spreads at 49bps on the bond curve and 50bps for swaps. In our CIMB FI Weekly as of 7 Nov 2017 we anticipated steeper bond curve in 2-5y segments from level of 38bps as of 7 Nov to anticipated 44bps. As 2x5 govvies spread hit 44bps on 14 Nov and steepened further towards 49bps level, we expect limited upside for 5y tenors (bonds and swaps). We eye topside of 5y IRS at 2.10% at end-2017 (seen at 2.04% on Nov 27).

Best Regards,
CIMB Treasury & Markets Research-Fixed Income
Tel: +603 2261 8557
www.cimb.com
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