US Treasuries posted gains with yields down 3-5bps across the benchmarks. Reports suggest foreign demand buoyed Treasuries on EM market concerns and as some global central banks either talked about tightening policy (such as ECB taper news and Turkey’s and Indonesia’s continued rate hike rhetoric) or questioning Fed’s hikes (India’s central bank governor writing in the FT). Worries over EM debt markets remained; including in Brazil where the real continue to weaken. But more notably, Turkey’s central bank raised its policy rates again by 125bps to 17.75%, its third increase in 2 months. Meanwhile, in US data we saw initial jobless claims at 222k in the week ended 2 Jun against 223k the week before.
In MYR bonds, flows were mostly on the auctioned paper MGS 06/38 while the rest of trading was very thin. However, most of trades saw yields declining. We can attribute some of the day’s demand to the brisk demand at the auction. We saw the new benchmark issuance of the 20y MGS 06/38 at bid-to-cover (BTC) ratio of 1.942x. This RM2.5b auction, the second of a 20y benchmark MGS for the year, saw a comparatively stronger demand compared to the auction for the previous benchmark in January. The said benchmark saw a BTC of 1.905x for an auction of RM3.0bn.
Yield falls below the last traded of the previous benchmark. The average yield for this auction was at 4.893% (with a range between 4.906% and 4.866%). Despite the duration pick up, the new benchmark saw levels below that of the last traded yield of the current 20y benchmark MGS 04/37 at 4.909%. This could be attributed to the bear steepening of the benchmark MGS curve. The spread of the 20y benchmark MGS currently sits at 71.4bps above the 10y benchmark MGS compared to 67bps seen at the beginning of the year and lows of 51bps seen in April.
The total foreign holdings in MGS’ fell to 41.9% in May from 44.3% the previous month, while total foreign holdings of govvies fell to 24.9% (26.5% previously).
Thai bonds consolidated in a tight range and no clear direction. Front-ends saw lower yields as local players maintained their interest amid light supply but foreign investor sold short-ends after USD/THB edged higher above 31.90. There were mixed interest for longer-tenor bonds and profit taking was observed at LB316A with yields moderately higher. Net buying interest on LB316A is expected if yields touch 3.00% and this should cap further -moves higher beyond this level.
IndoGBs were relatively quiet Thursday ahead of next week’s long holiday. Some activities were spotted in the afternoon session amid news of possible ECB taper. IndoGBs further weakened with yields up 8bps. Volume decreased to IDR14.2t whilst trade concentration shifted to long end of the curve.
CIMB Treasury & Markets Research-Fixed Income
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