US Treasury yields pressured by higher inflation concerns. UST yield curve bear flattened as the 10T surpassed the 2.60% mark and settled at 2.63%, buoyed by higher inflation expectations. The $13b 10y TIPS auctioned on Thursday received strong demand with yield of 0.548% and btc of 2.69x. Economic data releases were mixed, with housing starts below expectations at 1.192m in Dec, against 1.275m forecasted earlier. Initial jobless claims registered at 220k for the period ended 13 Jan, lower than consensus 249k. Meantime, the House passed a short-term spending bill late Thursday, but may face resistance in Senate. Expect some consolidation with 10T hovering near 2.60%, a strong technical ceiling.
Malaysia government bonds under profit taking pressure. Bond yields edged higher across the curve, led by profit taking activities amid rise in UST yields. In addition, there was a lack of positive catalyst with USD/MYR hovering between 3.95-3.96 on Thursday. Expect pressure to sustain and flows to remain muted heading into MPC next week. While 10T surpassed 2.60% mark, the MGS is expected to stay flat with weakening bias.
Some selling today; Thailand policy to remain accommodative. Thai government curve was bear steepening in line with UST as 10-year UST yield posted a strong rise and almost touched 2.60%. Dynamics in fixed income market driven by sell-off in USTs and concern about BOT's intervention to weaken Baht increased selling interest among foreign investors who were net seller of short-ends and long-ends at totaling amount of Bt9.13b on Thursday. Meanwhile, we observed some local funds showing buying-on-dips interest. According to the BOT open letter to finance minister, the BoT explains inflation is subdued at 0.66% yoy due to low fresh food price and there is no sign of deflation or limitation for economic expansion. Moreover, inflation is expected to increase to 1%-4% target in 1H18 due to increasing oil price and the BoT maintains official targeted inflation of 1%-4% for FY2018. In the letter, the central bank mentioned monetary policy will remain accommodative to facilitate economic growth but additional easing is unlikely due to risks in financial sector, indicating that policy rate will stay at 1.50% for longer. Separately, labor department announced Thailand will raise daily minimum wage in April 2018 by 5-22 baht from the current wage of 300 THB that was not changed since 2013. Wage hike will substantially impact labor-intensive industries such as agricultural and fishery sector while gradual hike is unlikely to have influential nationwide impact on increasing producer price index as well as employer's cost. Therefore, we expect moderate risk of price pressures regarding this measure.
Indonesia's govvies supported by foreign inflows. Market was slow on Thursday morning but activities seemed to pick up in the afternoon. We saw foreign inflows to the market, raising overall bond ownership by IDR7.8t to a total of IDR869.2t just this week. Overall market strengthened with yields lower by up to 3bps. Market volume kept decreasing to IDR11.6t only whilst trade concentration was still heavy at the long end of the curve.
Asian Dollar Credits were well supported. Sentiment was positive with Fed Beige Book pointing to healthy growth in US, along with better-than-expected China's 4Q17 GDP print (+6.8% yoy against consensus +6.7%). In primary space, China South City's 3y bond was guided at 7.625%, while India's NTPC and Sri Lanka sovereign were among the latest names included in the pipelines. In general, risk sentiment was firm with regional CDS spread marginally tighter by 1bp on Thursday.
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CIMB Treasury & Markets Research-Fixed Income
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