FW: CIMB Fixed Income Daily - 31 May 2018 - IDR up and ID bonds firm as Bank Indonesia raises policy rate again

 

 

CIMB Fixed Income Daily - 31 May 2018 - IDR up and ID bonds firm as Bank Indonesia raises policy rate again

 

On Wednesday, US Treasury yields moved 7-10bps higher to pullback from Tuesday's gains (down as much as 18bps) but we think mainly on profit taking pressure. Safe haven demand, in our opinion, remains in play. US-China trade concerns remain whilst US-North Korea geopolitics remains a worry. Meantime, the Italian government conflict with prospects of a snap election rising remains a pressure on risk appetite. Meanwhile, the Fed released its Beige book report, which indicated the economy is on moderate expansion. The report pointed to stronger manufacturing activity but called consumer spending as being 'soft'. There was more risk to growth ‑ the ADP jobs report indicated an increase of 178k in May which is below consensus (+190k) whilst the April number was revised down to 163k from 204k prior estimate. Also, the second reading of 1Q18 GDP was cut to +2.2% qoq from 2.3%.

 

In Malaysia, the MGS market was mixed whilst players were still focused on incoming government policy announcements. As it were, the market wasn't perturbed by the RM1.0t government debt reveal but was still apprehensive on the fiscal plan with GST set to taken away on 1 June. Aside, the government's heavy RM4.0b auction of 5.5y GII (GII Nov'23) received strong demand with bid-cover at 1.989x. To compare, bid-cover at the previous 5y auction being a similarly heavy RM4.0b sale of MGS Apr'23 was 1.563x. Demand was pretty late coming in to yesterday's auction as we saw WI falling towards 4.090/085% ahead of the tender closing compared with bids around 4.15% late last week. Still, overall bids by the end were not overwhelmingly aggressive, with average yield at 4.094% and high-low of 4.11/07% or well within the WI trading range.

 

In Thailand, bonds consolidated in a tight range after investors returned from holiday. Thai bonds posted small gains with yields declining by 1bps as foreign investors maintained their interest since 23 May amid UST rally. Moreover, front-ends demand from local funds remained firm since the beginning of the week as rates hit a reasonable benchmark interest rate level at 1.50% and there was excess local liquidity after continued period of bond selling. Outright trading activities slowed to Bt23b on Wednesday as the market waited for the court ruling on the bill on election of MPs and US jobs report on Friday. After the court reached verdict on 30 May that the clauses of the organic law on electing MPs did not violate the constitution, local sentiment improved with higher SET index and rising THB. Therefore, we expect limited upside on THB yield for the rest of this week. Moreover, front-end THB rates did not react higher with the external environment when Bank Indonesia raised interest rates by 25bps to 4.75% at a special meeting on Wednesday.

 

On Wednesday, IndoGBs opened soft with global markets down due to risk-off sentiment amid the Italian political crisis. Yields rose 8-10bps early but recovered after the BI additional meeting, where it raised the 7-day reverse repo rate by 25bps to 4.75%. On the back of the two rate hikes in the same month, the Rupiah strengthened to below 14,000 and bond buyers emerged at benchmark series especially 10y FR64.

 

Asian dollar bonds were traded mixed. Overnight rally in US Treasuries were due mainly to safe haven demand amid fresh risks especially geopolitics. This ensured Asian dollar bonds were down amid lower risk appetite. The iTraxx Asia ex-Japan IG index widened by about half a basis point Wednesday.

 

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

 

******************************************************************************************************************************************************
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 ******************************************************************************************************************************************************