FW: CIMB Fixed Income Daily - 09 Apr 2018 - Trade concerns still pressure regional bonds / MY foreign holdings up in March

 

 

CIMB Fixed Income Daily - 09 Apr 2018 - Trade concerns still pressure regional bonds / MY foreign holdings up in March

 

US Treasuries rallied with yields down 4-6bps with continued fears of trade conflict and non-farm payrolls much lower than expected. Trump added fuel to the fire as he talked of intention for tariffs on additional $100b of products. Meanwhile, NFP was +103k in the month of March 2018 against 185k consensus but the February number was revised up to 326k from 313k prior estimate. And there was increase of 2.7% yoy in average hourly earnings. We wait for the last FOMC meeting minutes this week. Last Friday saw Fed chief Powell reiterating Fed’s aim for gradual rate hikes but added some concerns when he said inflation would accelerate in the spring.

 

Last week, US versus China trade news had hogged headlines but on Thursday saw speculation that both sides were willing to negotiate to avert a trade war. White House chief economic adviser Larry Kudlow said China’s threat to employ tariffs on major US products may not take hold as he saw it as a negotiation tactic on the part of China. Yet, following that Trump has ordered US Trade representative Lighthizer to consider $100b in additional tariffs in response to ‘China’s unfair retaliation’. We expect continued volatility in markets as the trade conflict issue looks unlikely to subside in the coming week and push US Treasuries towards mild gains.

 

Malaysian government securities were dealt mixed within a tight range Friday with external headwinds on trade still blowing and players awaiting Friday’s US non-farm payrolls. In any case, we expect upbeat outlook for short-tenor bonds in general, in view of firm MYR and low inflation environment bringing Bank Negara Malaysia unlikely to tighten anytime soon. We foresee sustained flows into shorter tenor MGS but lift our view for 3y MGS immediate support to 3.50%. Meantime, with the rally in MGS in March, foreign holdings in MGS+GII rose by RM899b or to RM184.77b. The total increase was fairly even on a mom basis between MGS (+RM441b) and GII (RM457b).

 

IndoGBs were traded weaker on Friday amid continued trade conflict concerns. However, the market was better supported compared with Thursday. There was support for 5y and 10y tenors though the yield curve in general moved 2-3 bps higher. Volume increased to IDR17t whilst trade concentration shifted to the front end of the curve.

 

 

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