FW: CIMB Fixed Income Navigator 1Q 2018 - Limited Yield Upside on MIST Markets

 

 

RATIONALE SUMMARY

• A flattening bias in the US market may continue given expectations of further rate hikes. In 4Q17, the US Treasury yield curve maintained its flat position heading towards the Dec FOMC meeting, where markets rightly anticipated the rate hike. The curve maintained its tight spread amid Trump-Russia investigations and the Senate passed its version of the tax reform bill at the start of Dec-2017.
• While the FOMC is looking at 3 rate hikes in 2018, we are cautious on fractious US politics and our view that global growth is facing a mere marginal uptick subject to high uncertainty risk in 2018 which can cap yields. Nonetheless, we note the Fed hiked its 2017 GDP growth projections to 2.4-2.5% range versus prior projection of 2.2-2.5% done at the Sep meeting. The 2018 projection was raised to 2.2-2.6% from 2.0-2.3% done in Sep. However, the dot-plot projection was maintained to signal three hikes in 2018 (same as in Sep) seeing the Fed also said inflation 'have declined this year and running below 2.0%.
• Hence, our central case is for policy normalisation to be protracted, gradual, and at varying speeds, amid an incomprehensive global economic recovery. Central bank guidance by the advanced economies will likely retain a constructive ambiguity which allows for directional restraint.
• In the MIST markets, we expect yields to rise to partly track US rates, but the upward trajectory is limited as per the above arguments. We opine that strong EM Asia fundamentals justify MIST markets as core holdings, while inflows have remained constructive on trend despite US rate hike rhetoric. Where global uncertainty risk is high, fundamental investors will see MIST markets as attractive bottom-up picks. Malaysia and Indonesia offer attractive carry on higher yields supported by FX prospects. In MIST markets, we are relatively more cautious on Thailand given THB outperformance and unattractively low yields, while Singapore's market will likely track UST yields higher.

Best Regards,
CIMB Treasury & Markets Research-Fixed Income
Tel: +603 2261 8557 | Fax: +603 2261 8705
www.cimb.com
Find us on Bloomberg at CIMR <Go>

******************************************************************************************************************************************************
Privileged/confidential information may be contained in this message. If this message is received by anyone other than the intended addressee, please return the message to the sender by replying to it and then delete the message from your computer. Unintended recipients are prohibited from taking action on the basis of information in this e-mail. No confidentiality or privilege is waived or lost by CIMB Group including its affiliates (CIMB Group) by any mistransmission of this e-mail. CIMB Group does not accept responsibility or liability for the accuracy or completeness of, or presence of any virus or disabling code in, this e-mail. CIMB Group reserves the right to monitor e-mail communications through its networks (in accordance with applicable laws). Opinions, conclusions, statements and other information in this message that do not relate to the official business of CIMB Group shall be understood as neither given nor endorsed by it.

CIMB Group Sdn Bhd (incorporated in Malaysia, (Company No: 706803-D)). Registered Office: 13th Floor, Menara CIMB, Jalan Stesen Sentral 2, Kuala Lumpur Sentral,, 50470 Kuala Lumpur, Malaysia.

Visit our website at www.cimb.com ******************************************************************************************************************************************************