FW: CIMB Fixed Income Daily - 16 Apr 2018 - External risks heighten and pressure on regional bonds may sustain

 

 

CIMB Fixed Income Daily - 16 Apr 2018 - External risks heighten and pressure on regional bonds may sustain

 

Last Friday, US Treasuries closed within a narrow range with players watching developments on trade and geopolitics. Players were also cautious after last week’s Fed minutes with outlook for gradual rate hikes lifting short-term yields but longer yields fell modestly on weak inflation numbers.

 

On the trade front, Trump is expected to soon detail which products from China will be on the $100b list of goods subject to the proposed 25% tariffs. Meantime, geopolitical concerns are raised after the US attack on Syria and Russia warning of ‘chaos’ if Syria gets attacked again. Heightened risks are expected to pile pressure on EM bonds but aid safer haven UST in the coming week.

 

The recent FOMC meeting minutes suggest all of the FOMC members think the US economy would firm further the rest of the year and that inflation will rise in the coming months. At the March FOMC meeting, the Fed unanimously voted to raise the Fed Funds rate by 25bps to 1.50-1.75% range. Last week, the March CPI fell 0.1% mom against zero increase consensus expectation.

 

Malaysian government bonds continued to weaken, with yields up 0-3bps across short to longer tenors. Weakness in MYR against USD pressured the shorter ends but longer tenors also weakened amid external risks whilst also acknowledging Fed and rest of DM central banks may soon resort back to monetary tightening. There had been weakness along the 10y MGS (MGS Nov’17) most of last week (last at 4.00%), but we also think some flows will soon move into MGS Jun’28 (4.00% seen as support) which will be the new 10y benchmark come a reopening auction slated for next month.

 

This week we have the March 2018 CPI on tap. However, with consensus at still pretty low +1.6% yoy, we expect little impact on bonds. Also up is auction of MGS Apr’23. Amount up for tender could top RM4.0b seeing it will be new 5y benchmark. The current 5y MGS (MGS Mar’22) is around 3.60%. The new MGS Apr’23 should find firm demand around 3.70-75%.

 

In Jakarta, it was a busy morning for IndoGB market on the back of Moody's rating upgrade. The market rallied with FR64 (10y benchmark) down by 14bps with other tenors strengthened slightly. The rally did not last long as players took to profit taking.

 

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