FW: CIMB Fixed Income Daily - 06 Apr 2018 - Bonds firm whilst trade conflict fears recede

 

 

CIMB Fixed Income Daily - 06 Apr 2018 - Bonds firm whilst trade conflict fears recede

 

US Treasuries continued to post losses with equities markets up amid lessened trade conflict fears and ahead of non-farm payrolls on Friday. Consensus for March NFP is a firm +190k though down from 313k in February. NFP to beat consensus should lift yields in the short term period. Resistance for 10T is way down at 2.63%. On the flipside, short term support for 10T is at 2.83% (next support likely around 2.95% and next 3.05%). We expect just a tad steeper curve in the short term period as sentiment normalizes somewhat; we now expect 2x10 spread at 55bps in next few days.

 

Ringgit government bonds strengthened with the 10y MGS down 1bp by late Thursday. Leading flows include a couple of 22s – GII Apr’22 steady at 3.83% and MGS Sep’22 up 2bps to 3.72%.

 

In macro data release, Malaysia’s trade activity surprised on the downside with gross exports down 2.0% yoy in February against CIMB economist’s forecast of 4.2% yoy and January’s +17.9% yoy or the first decline in 16 months. Meanwhile, gross imports fell by a larger 2.8% versus consensus +7.1%. Malaysia’s export deterioration was sharper than those of its Asian peers, led by a slowdown in the manufactured segment, of which about 60% of sub-segments recorded negative growth in February, such as electrical and electronics at -0.1% yoy in February  versus +27.2% yoy in January. On the bright side, strong oil prices continued to support export performance of crude petroleum (+3.0% yoy against +0.1% yoy in January and refined petroleum products (+29.1% yoy versus +2.1% yoy January. CIMB economist has maintained our 2018 export forecast of +9.8% (+18.9% in 2017) on the basis of: 1) moderating global demand growth for electronics, 2) commodities’ terms of trade headwinds, 3) normalisation of plantation crop production growth, and 4) the translation effects of a stronger ringgit. Trade tensions between the US and China is a possible downside risk, although Malaysia’s diversified export structure offers some degree of protection against targeted tariffs.

 

In Thailand, profit taking along source bonds LB191A, LB196A, and LB206A increased yields by 2bps after the bond switching exercise ended. On the other hand, demand for destination bonds LB326A followed by LB316A saw firm bids; LB326A at 2.98% pressuring the yields down by 7bps and the yield for bonds near this series declined by 2-3bps. Meantime, bonds on other parts of the curve were thinly traded and yields were little changed as investors waited to see NFP report and Thai market closed on Friday. Foreign investors continued selling front-end govvies as global trade tension eased and USD/THB well bid above 31.20.

 

IndoGBs were pretty active Thursday thanks offshore inflows and aided by interest from locals but ended mildly weaker on profit taking pressure. Aside, weakening government bonds was officials saying BI will allow banks to include corporate bonds into a more relaxed reserve requirement calculation. This comes as part of reform to monetary policy. Last January, BI said banks will be allowed to have minimum primary reserve requirement ratio of 4.5% (down from 5%) as long as the average two-week ratio is at least 6.5%. New rules are set to be implemented 16 July.

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