FW: CIMB Fixed Income Daily - 22 Jan 2018 - UST yields climbed amid government shutdown

 

 

US Treasury yields reached in multi-years high. The yields continued to rise alongside the government shutdown, after the Senate failed to pass a temporary funding bill on Friday. In addition, there was no sigh of relief after both Republicans and Democrats failed to compromise during weekend discussion. However, looking at the bright side, there will be an early Monday vote in Senate for short-term funding resolution until 8 Feb. On a separate note, San Francisco Fed president Williams see three rate hikes as "good starting point", and he expects economy to grow at 2.25-2.50% pace while unemployment to decline to 3.7% by end 2018 from current 4.1%.

Malaysia government bonds pressured ahead of MPC meeting. Bond market was seen with net selling activities despite firmer MYR with USD/MYR dipped below 3.94 on Friday. Meanwhile, players await the announcement of 15y MGS reopening auction this week. We expect issue size to come at RM2.5b for this issue. As speculation on potential rate hike likely to persist, we expect MYR govvies to remain under pressure ahead of MPC meeting this week.

FX intervention concerns slowed foreign buying. Activities in Thai bond market somewhat slowed on Friday and outright trading value dropped to Bt81.8b. Yields consolidated in tight ranges of 1bp amid light macro data. Moreover, investors waited to see US debt ceiling deadline. Fear on BoT FX intervention slowed the buying momentum from foreign investors who registered Bt1.76b net buying position on Friday, compared with Bt10b registered on Tuesday and Wednesday.

Indonesia's govvies supported by foreign inflows. IndoGB initially weakened on Friday, in line with higher US Treasury yields to 2.64% (10y). However local provided strong support with some buy-on-dips activities, and foreign onshore banks joined the buying side on afternoon session, yields basically settled unchanged on short dated up to 5y, while belly to long end yields went up only 1-2 bps. In terms of activities, 10-20y benchmark series dominated the market. Market volume rebounded to IDR16.1t whilst trade concentration shifted toward the front end and belly of the curve.

Asian Dollar Credits under pressure. Secondary trading was seen with weakening bias following a breakout of 2.60% for the 10y UST. Pressure was also partially driven by heavy primary flows. Tata Steel priced its 5 and 10y bonds at 4.45% and 5.45% respectively, while China South City sold its 3y paper at 7.25%, tighter than 7.625% guided earlier. In our opinion, spreads may widen further amid weaker UST.

Best Regards,
CIMB Treasury & Markets Research-Fixed Income
Tel: +603 2261 8557 | Fax: +603 2261 8705
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