FW: RHB FIC Rates & FX Market Update - 10/1/18

 

 

 

10 January 2018

 

 

Rates & FX Market Update

 

 

10y US Treasury Yield Climbed to the Highest in Nine Months

 

Highlights

 

¨   Global Markets: The 10y US Treasuries sold off yesterday with 10y yield climbing by 7.3bps to 2.55%, a level not seen since March last year. The move could have been triggered by the surprise of bond purchase changes operated by BoJ (see below) spurring uncertainties among market participants. It also comes ahead of a busy auction calendar (T-Note and T-Bond reopenings) raising concerns about an oversupply of Treasuries into the private sector with less support from the Fed unwinding its balance sheet, although not evident as the bank rather bought c.USD10bn of securities in December; remain neutral UST.

¨   AxJ Markets: Market participants digested the news from PBoC which removed the "counter-cyclical factor" from the yuan's fixing mechanism introduced earlier last year to prevent from further depreciation. As the Dollar reported a c.10% decline in 2017, the PBoC might be taking measures to counteract CNY appreciation now underpinning our view that authorities seek to stabilise the currency. The CNY consequently dropped by -0.46% d-o-d against the USD, a move earlier initiated by lowest fixings from the central bank in two months; remain neutral CNY.

¨   Unlike its G10 peers, the JPY traded stronger against the USD as the currency found support following BoJ operations; the central bank reduced its purchase of longer-dated bonds, specifically by JPY10bn each in the 10-25 year segment and the more-than-25-years bucket. As a result on markets, the 10y JGB yield climbed +0.8bps to 0.071% while the JPY appreciated +0.41% against the greenback with the USDJPY pair closing at 112.65. We remain neutral JPY with the USDJPY pair stuck in a multi-month range combined with relative uncertainties over the future of BoJ's policy.

 

 

 

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