FW: CIMB Fixed Income Daily - 21 May 2018 - ID bond yields rise after BI rate hike

 

 

CIMB Fixed Income Daily - 21 May 2018 - ID bond yields rise after BI rate hike

 

US Treasuries posted gains which came mainly on bargain hunting interest after recent selldown. We anticipate continued pressure on UST the coming week, as trade issues continue to reduce as US and China continue to see eye-to-eye, and as the Treasury Department sells more than $100b in papers.

 

Malaysian government bonds moved mixed as the cautious mood remained. Investors’ current concern includes the fiscal impact from implementation of key election proposals such as the abolishment of the Goods and Services Tax (GST) and re-introduction of fuel subsidies. Our calculations suggest implementation of the sales and services tax as well as other taxes whilst reducing expenditure should make up for the bulk in potential loss in GST revenue (which in 2017 was estimated at about RM40b). Boost to revenue going forward should also come from oil-related revenue, which was expected to contribute RM37.8b or 15.7% of total revenue in 2018. However, this should increase as the aforementioned figure assumed only around US$50 per barrel crude oil price. Crude oil price has since risen to near $80 per barrel.

 

Earlier in the week, data show 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. While awaiting the government’s announcements of further fiscal reforms, we maintain our 2018 GDP growth forecast of 5.2%. 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 Thailand, the selldown in bonds slowed somewhat on Friday with front- to mid-end yields up further within 2bps led by selling flows in 5y bonds. The BoT increased notional amount of 15d short-term bonds (CB) to Bt25b from Bt20b for the auction on 18 May and it was entirely absorbed by the market at 1.48 bid-cover and average yield of 1.2631%, or 4bps cheaper than previous auction on 11 May. Foreign investors continued cutting Thai bond position after USD/THB shot higher and retested previous high at 32.22.

 

Indonesia’s government bonds weakened with yields up 21bps along 10y tenors Friday post-BI rate hike (7dRRR raised by 25bps to 4.50%). However, stronger USD kept rupiah at Thursday's level on open, and USD keep pushing higher as bonds weakened. We think domestic players provided bids while offshore players were more on the offer side.

CIMB Treasury & Markets Research-Fixed Income
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