US Treasury yields rise. UST yields climbed across the curve, after the Fed Beige Book indicated modest to moderate growth in the economy and inflation, apart from tight labor market conditions. On a separate note, Chicago Fed president Evans and Dallas Fed president Kaplan believed that the economy will register growth rate of more than 2.5% this year. However, Kaplan revealed his concerns over the risk of an overheating economy and thought that the Fed would need to raise rates three times this year, while Evans preferred fewer rate hikes. The 10y UST appears to be approaching the 2.60% psychological level which we deem to be a strong resistance level, and we opine it would require a more syncrhonised discussion of higher rates and a stronger economy for this to be exceeded.
Malaysia yields remain at a strong level. Malaysian sovereign bonds were seen with little changes on Wednesday. Similarly, IRS rates stayed relatively flat across the curve. Aside, players turned cautious as USD broadly strengthened during mid-week, with USD/MYR paring most of its losses after dipping to around 3.9450 in the morning session. With the 10y MGS index at 3.84%, much strength appears to be priced in given this is around its 2H17 trough despite expectations of an impending rate hike by the central bank in 1Q18.
Thailand raises concerns on strong Baht. The Thai government bond curve bear steepened as mid to long end yields moved 3-4bps higher on Wednesday due to long-tailed auction of LB366A and the BOT governor's comment. The LB366A auction generated average yield at 2.8182%, auctioned range of 2.798%-2.84%, and btc ratio at 1.32x. In addition, there was no exercise of 10% over-allotment topping the auctioned amount of Bt12b as large local funds and insurance companies did not actively participate. After the auction and the bidding yield of LB366A rose to 2.89%, selling pressure was noticed across the curve due to concern about depreciative FX intervention from the BoT after the central bank governor Veerathai signaled the central bank will roll out measures to curb the baht's appreciation and speculation.
Indonesia's buyers ease. IndoGB weakened on Wednesday as yields rose by 2-4bps for 5y to 20y buckets. The 7y tenure was the exception as market seemed to be in short supply. We suspect the weakened bond market was due to the oversupply in the 10y tenure as MoF had issued IDR7t in the bond auction with btc ratio of only 1.86x. Elsewhere, the stronger USD also triggered foreign outflows in the bond market, though we saw locals supporting the market especially towards closing time. Market volume decreased to IDR21.8t whilst trades remained heavy at the long end of the curve. It appears buying inflows have eased a little following the major inflows following the Fitch upgrade and some yield consolidation is expected.
Asian Dollar Credits turn softer. USD credits were dealt weaker, as sentiment turned guarded awaiting US government funding negotiation outcome. In addition, buying interest was also dampened by persistent primary pipelines since early this year. According to Bloomberg news, Concord New Energy priced its 3y bond at 7.9%, while Sunny Optical's 5y paper was launched at T+150bps. Meantime, GCL New Energy was reportedly looking for USD issuance. The Bloomberg Barclays EM Asia USD indices appear to have indicated a HY-IG divergence since 4Q17 with the former attracting yield hunters and the latter tracking UST yields.
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CIMB Treasury & Markets Research-Fixed Income
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