FW: CIMB Fixed Income Daily - 11 Apr 2018 - Reduced safe-haven demand thanks to Xi

 

 

CIMB Fixed Income Daily - 11 Apr 2018 - Reduced safe-haven demand thanks to Xi

 

US Treasuries closed weaker for a second consecutive day with yields up 1-3bps, with reduced demand for risk haven assets. Decline in demand for safer assets emanated from China’s Xi’s comments warning that cold war mentality and zero-sum trade conflicts have no room in the current or modern environment. Xi further announced moves to open up the Chinese economy including lowering tariffs and duties (such as on auto imports) and enforcing intellectual property laws. In economic data, PPI rose 0.3% mom in March, or beating consensus of +0.1% and higher than 0.2% mom in February. CPI is up next for release Wednesday, with consensus at lower a 0.0% mom against 0.2% in February.

 

The Treasury Department sold $30b of the 3T, at 2.450% high yield (much higher than 1.772% at 12 previous 3T auctions) and lower bid-cover of 2.85x (2.91x 12 prior auctions). Indirect bidders, which include foreign central banks ended up with a lower 47.6% of the amount (against 54.4% average past 12 auctions).

 

Ringgit government bonds moved in range on Tuesday amid some cautious mood, after overnight weakness in US Treasuries (as trade conflict fears receded), announcement of Malaysia’s general election (scheduled for 9 May) and ahead of February’s IPI data due for release on Wednesday (consensus at +3.2% yoy against +3.0% in January).

 

Meantime, the central bank announced detail of this week’s reopening auction of GII maturing Aug’37. Amount to be auctioned off will be RM2.5b to add to the current outstanding RM5.0b. On Tuesday, GII Aug’37 was slightly weaker at 4.75% (RM60m volume) or nudged half a basis point higher from Monday. We continue to like short tenor MGS. The 3y MGS was barely changed at 3.46% on Tuesday after moving 2bps higher since late March; we expect strong support levels around 3.50% (next 3.57%).

 

Thai govvies ended mixed Tuesday. Front-end led saw losses with yields higher 1-3bps. Meanwhile, long-ends continued to gain with yields down 1-2bps (for tenors <13 years. LB series starting with three figures have been taken with firm demand since end of debt switching. Foreign investors sold both short-dated and long-dated debt securities due to lower demand for safe assets after Xi eased trade tension in his speak at the Boao forum.

 

IndoGB market was slow on Tuesday morning except for some inflows into the 10y buckets with local participants quiet as Tuesday was auction day. However, post auction saw larger incoming bids reaching IDR37.7t. MoF increased its issuance from IDR17t target to IDR21.85t. The auction for the 10y benchmark saw bid to cover ratio of 2.89x.

 

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