US Treasuries gained with yields down about 5bps including the longer tenors. News that Trump remain serious to take action to limit investments from China but by using existing tools caused some net selling at the start of US session. However, UST remained strong via safe haven demand. There was also signal that foreign investors were buying up US Treasuries to hedge against their local currencies’ weakness. PBOC announced cut in reserve requirement rate starting 5 July whilst setting its yuan fixing weaker to 6.5569 mid-point or weakest in six months.
Another emerging risk is threat of a snap election being called in Germany. Rally in UST but USD index backing away from 95.50 amid ongoing headline risks ought to support EM Asia bonds today, in our opinion.
The Treasury Department sold $36b of the 5T but demand was mildly better at 2.55x bid-cover (2.48x average past 12 auctions) at high yield 2.719% (2.262% past 12 auctions). Indirect bidders, which include foreign central banks, bought a lower 62.0% of the auction (63.6% past 12 auctions).
Malaysia’s government bonds saw heavier trading but the day’s session ended on the weaker side, coming alongside generally weak sentiment in the EM space on Wednesday. Heavily traded included MGS 11/27 but which closed weaker at 4.35% up 6bps though there some late demand on the security after intraday saw 4.37% traded.
Today is tender closing for reopening of 15y GII (GII 06/33) worth RM3.5b. There was little interest and no trades for the paper along the weak secondary market yesterday. However, we’re hoping for decent demand at today’s tender. Current low inflation should add demand into longer-tenor MGS and GII, in our opinion. Last week, Malaysia reported headline inflation nudging up to 1.8% yoy in May (CIMB: +2.0% yoy, Bloomberg consensus: +1.8% yoy, Apr: +1.4% yoy), amid the low base in fuel inflation. In comparison, core inflation was unchanged at +1.5% yoy in May. Our CIMB economist says to account for downward consumer price adjustments resulting from the GST cut, the reintroduction of the sales and service tax (SST) in Sep, and curbed spillover effect from global oil prices to retail RON95 petrol and diesel prices, she is revising down CIMB’s 2018 headline inflation forecast from 2.6% to 1.3%, which is well below Bank Negara Malaysia’s policy target of 2-3%.
Asian dollar credits remained to see weak movement amid the global growth concerns. There also remained little action along the primary segment. Bloomberg reported only Korean National Oil Corp as the only issuer marketing USD bonds; it reportedly gave guidance for 5y FRNs at 3mL+90bps.
CIMB Treasury & Markets Research-Fixed Income
******************************************************************************************************************************************************
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 ******************************************************************************************************************************************************
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.