FW: CIMB Fixed Income Daily - 19 Apr 2018 - Malaysia?s CPI misses by quite a margin

 

 

CIMB Fixed Income Daily - 19 Apr 2018 - Malaysia’s CPI misses by quite a margin

 

US Treasuries continued to weaken with yields up 3-5bps and the yield curve continuing to flatten as Fed-speak this week had been on the hawkish side. San Francisco Fed president Williams quipped that he thinks the neutral policy rate is 3.00%. Earlier this week he said the thinks inflation will hit 2.0% this year. Also, Philadelphia Fed’s Harker said unemployment was below the natural rate, thus indicating potential rise in wages. Elsewhere, Chicago’s Evans said the Fed’s gradual rate hikes comes as risk of the economy overheating wasn’t high. We think 2x10 spread could hit a tighter 40bps in short term period as we think Fed officials’ current (hawkish) signaling is pretty strong.

 

Malaysian government bonds moved weaker amid a cautious mood with lack of pertinent fresh drivers. There was some midday support with 10y MGS steady at 4.00% before a late downtick on light volume as the March 2018 CPI number missed consensus by quite a margin. Aside, tender for new 5y MGS closes today (size RM4.0b) with WI heard around 3.72% on the bid side. We heard little on the offer side which should mean healthy demand at the tender.

 

Malaysia’s consumer price index eased to +1.3% yoy in March (+1.4% yoy in February), against expectations that February’s already pretty low number was likely to have been the trough. CIMB’s earlier expectation for March CPI was +1.7% yoy and Bloomberg’s consensus was +1.6% yoy. Furthermore, core inflation cooled to 1.7% yoy in March (+1.8% yoy in February). Notably, headline’s figure is below core CPI for a second straight month. CIMB is revising our 2018 headline inflation forecast from 2.9% to 2.6% (against 3.7% in 2017, which is a sharp moderation).

 

Malaysia’s real rate of interest is higher as inflation ebbs (OPR at 3.25% versus inflation 1.3% gives real rate of 1.95%). There’s now less pressure to hike the OPR, with the subdued inflation and stronger MYR whilst there’s increased risk of external headwinds. Our CIMB economist sees the OPR to stay at 3.25% until end-2018, with the central bank likely to defer another rate hike only in 2019. With expectation for OPR being at 3.25%, our 3y MGS forecast is maintained at 3.45% and 10y MGS 4.00% end-2Q18. However, if low CPI continues to persist below 2% amid ongoing concerns of declining global PMIs and the trade tensions, we would likely review our yield forecasts.

 

Thai govvies curve was in a bearish steepening move and long-ends rose 1-3bps after soft demand for LB466A. The auction of LB466A tailed with high yield at 3.35% and total size of Bt13b was not entirely absorbed with 0.8 bid-to-cover ratio (LB466A up 3bps up on Wednesday). Front-ends rose within 1bp, alongside a higher USD/THB and foreign net selling. Post-LB466A auction confirms our belief that ultra-long bonds (22y tenors and higher) will subject to downside risks. Meantime, intermediates to long-ends with time to maturity less than 21 years remained firm with hints of players shortening duration holding (ultra-long bonds for shorter-term bonds).

 

There was a lack of catalysts in the IndoGB market which meant prices were little changed with some tenors got traded down in small sizes. IndoGBs saw small movements along 5-15y tenors but rose 2bps on the 20y tenors. Volume improved to IDR 15.2t and centered on the front end of the curve.

 

CIMB Treasury & Markets Research-Fixed Income
Tel: +603 2261 8557 | Fax: +603 2261 8705
www.cimb.com
Find us on Bloomberg at CIMR <Go>

Think Before You Print

******************************************************************************************************************************************************
Privileged/confidential information may be contained in this message. If this message is received by anyone other than the intended addressee, please return the message to the sender by replying to it and then delete the message from your computer. Unintended recipients are prohibited from taking action on the basis of information in this e-mail. No confidentiality or privilege is waived or lost by CIMB Group including its affiliates (CIMB Group) by any mistransmission of this e-mail. CIMB Group does not accept responsibility or liability for the accuracy or completeness of, or presence of any virus or disabling code in, this e-mail. CIMB Group reserves the right to monitor e-mail communications through its networks (in accordance with applicable laws). Opinions, conclusions, statements and other information in this message that do not relate to the official business of CIMB Group shall be understood as neither given nor endorsed by it.

CIMB Group Sdn Bhd (incorporated in Malaysia, (Company No: 706803-D)). Registered Office: 13th Floor, Menara CIMB, Jalan Stesen Sentral 2, Kuala Lumpur Sentral,, 50470 Kuala Lumpur, Malaysia.

Visit our website at www.cimb.com ******************************************************************************************************************************************************