FW: CIMB Fixed Income Daily - 18 May 2018 - US yields continue rising; MY 1Q18 GDP at 5.4%; BI lift rates as expected

 

 

CIMB Fixed Income Daily - 18 May 2018 - US yields continue rising; MY 1Q18 GDP at 5.4%; BI lift rates as expected

 

US Treasury yields kept up pace with 10T above 3.00% to hover currently near 3.12% or near highest since 2011. Focus remained towards upbeat US growth outlook after recent data and aided by hopes of improved trade relations with China and as global crude oil prices continued trek higher (Brent futures just under $80 per barrel or near highest since 2013). The curve steepened with 2x10 spread now at 55bps against about 43bps a week ago.

 

In Thailand, rising UST yields had much to do with weaker sentiment in the bond market. Thus, Thai bonds ended lower Thursday with yields up 2-4bps across all tenors. At the same time, the Bt40b auction of 2y BoT205A received strong demand at 1.97 bid-to-cover ratio after there were firm bids from local banks and asset managers (as yields had risen to attractive buy level). Average yield was 1.708% at the auction, or 21bps cheaper than the previous auction of 2y BoT202B on 19 Apr (where average auction yield was 1.49%).

 

In Indonesia, govvies were dealt firmer, with activity led by local buying interest ahead of the BI meeting with consensus favors a BI rate hike by 25bps to 4.50% and as the rupiah strengthened to below 14100 since opening. Volume fell to IDR15.8t whilst trade concentration was distributed equally along the curve.

 

After strong signals by BI ahead of the policy meeting that it will hike the 7d RRR, it did just that as it raised the rate by 25bps to 4.50%. Our economist thinks Indonesia’s current macro fundamentals are more resilient, including metrics of inflation, current account, fiscal finances as well a supportive external environment. She expects no more hike rest of 2018 and added that yesterday’s hike was not a repeat of 2013, when the policy rate was raised by 175bp to manage rising external imbalances and spillovers from the taper tantrum.

 

Malaysia’s government bonds weakened amid active flows. We suspect overnight news the GST was to be scrapped set the underwhelming tone though we also noted the sluggish UST was exerting pressure on domestic MYR govvies. Flows were heaviest along GII Apr’22 at >RM450m, as it ended the day about 1bp higher to 3.93%.

 

Meantime, Malaysia’s GDP grew 5.4% yoy in 1Q18 or lower versus +5.9% yoy in 4Q17 amid weaker growth in government consumption and investments. The bigger contribution from net trade in 1Q18 made a key difference to the topline along with a sharp decline in imports. Also, the current account (CA) surplus widened to RM15.0b or 4.4% of GDP in 1Q18 (+RM13.9b in 4Q17) due to a higher goods surplus and a narrower services deficit. The financial account more than doubled qoq (+RM15.2b in 1Q18 versus +RM6.0b in 4Q17) due to an influx of net direct investment and other investment. Conducive global market conditions encouraged Malaysians to invest overseas, which sank the portfolio account to a deficit of RM2.6n in 1Q18 (vs. +RM11.6n in 4Q17). 

 

In lieu of further fiscal reforms, our economist had maintained CIMB’s forecast for 2018 GDP growth at 5.2%. She added the GST cut is likely to shift inflation onto a shallower upward trajectory in 2H18, and reinforces her expectations for the OPR to remain unchanged at 3.25% in 2018.

 

CIMB Treasury & Markets Research-Fixed Income
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