FW: CIMB Fixed Income Weekly - 05 Feb 2018 - Maintain view on longer tenor MY bonds

 

 

US Treasuries

• While the Fed as expected kept the interest rate unchanged, the UST bearishness was caused by the hawkish Fed. The FOMC voted unanimously to maintain the FFR at 1.25-1.50%, while also noting inflation 'is expected to move up this year and to stabilize'. The phrasing was more hawkish if compared to the December statement
• Mild flattening could occur. We note the UST curve steepened extensively last week, but we think consolidation for a mild flattening will occur in the short to medium term period. Short tenor USTs ought to show some upward swing (after the long ends shot up in recent weeks) especially as Fed turned more hawkish. We're eyeing 2x10 spread towards 65bps after shooting up to 70bps last week (about 55bps the week prior).

Malaysia

• Upbeat on longer tenors. In the short to medium term, we are cautious of a bear-flattening move as monetary tightening bias has strengthened, though this could be tempered if MYR's positive momentum continues. Dependent on the 10y MGS (MGS Nov'27) maintaining below 4.00%, 15y MGS should hover near 4.35-40% in the short to medium term period. Lastly, we expect swap spread to remain relatively wide in the short term period   eyeing 5x5 swap spread nearer to 30bps.

Thailand

• Light position on foreign holding and soft reading of Thai CPI in Jan looks to limit loss in Thai bond. At present, concerns over fund outflows look controlled because foreign holdings in Thai govvies remain at a relatively low 11% of total outstanding value (as of Feb 5 2018). Moreover, low inflationary pressures also helped domestic bonds (there's a current drag in food prices). Headline inflation for the month of January 2018 was tepid at 0.68% yoy whilst core inflation was 0.58% yoy (compared with BoT target at 1.00%-4.00%).
• Expect firm auction. Expect firm demand for LB316A especially if bidding yield rises to near 2.83%. We expect solid demand for auction of LB316A (maturity June 2031) come Wednesday as we foresee key players will take opportunistic buys amid the rising yield.

Indonesia

• Expect continued weakness following UST trend. We have 4Q2017 GDP data to be released this week. Bloomberg consensus is +5.10% yoy against 5.06% yoy in the 3Q2017. Though assuming a firm GDP number, we still expect 10y bond to increase mildly to around 6.50% this week as we expect US Treasuries to remain weak for the time being.

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

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