FW: (RESEND) CIMB Fixed Income Daily - 01 Jun 2018 - Gains in regional bonds hint of foreign interest

 

 

CIMB Fixed Income Daily - 01 Jun 2018 - Gains in regional bonds hint of foreign interest 

 

US Treasuries consolidated, after opening on weaker note but progressed steadily towards closing. Sentiment for the safer haven UST was boosted on trade concerns, as US secretary of commerce Wilbur Ross said exemptions of US tariffs on steel and aluminum will not be extended to Canada, Mexico and the EU. On the flipside, net selling on UST was heard as Italy's Movimento 5 Stelle and Lega were again reportedly in agreement to form a coalition government.

 

On Thursday, Malaysian government bonds moved firm on select benchmark papers signaling some normalization in sentiment with hints of foreign net buying. Also, end-month buying also aided the overall move. The 10y MGS shed 7bps to 4.18%. Meanwhile, we are positive on some details coming out of the MOF yesterday, and which should aid sentiment in the Malaysian bond market at least in the short term horizon. The MOF said the country is on pace to meet already targeted 2.8% of GDP fiscal deficit for this year. The target deficit in ringgit terms is anticipated to show a small increase to RM40.1b against RM39.8b prior estimate. Aiding this outlook was estimated extra revenue of RM5.4b due to higher oil prices (than estimated in 2018 Budget). MOF also said there’ll be additional RM4.0b revenue from the planned sales tax, and RM5b added revenue from higher GLC dividends.

 

Overseas players placed firm bids on Thai govvies and mid- to long-ends rallied starting from 8y LB25DA to longer dated securities resulting in a bull-flattening curve as yields declined by 5-8bps (8-18y tenors). Meantime, net selling pressure was limited to the front-ends with yields up 1bp on the rosy Thai election roadmap together with recent solid 1Q18 GDP data (supports story that Thai policy rate will stage into bottom-out cycle).

 

In Jakarta, IndoGBs rallied on the back of strengthening rupiah after the prior day’s BI rate hike. The market also easily traded higher as bond supply looks thin. We heard that bidders were mostly foreign onshore banks, though select domestic players were taking profit.

 

Asian dollar denominated credits were mildly supported with the iTraxx Asia ex-Japan high grade index about 1bp tighter on Thursday. Overnight US Treasury losses pressured on credits with geopolitics and trade worries still pertinent risks as well as ongoing political crisis in Italy. However, news North Korean officials arriving in the US for scheduled talks alleviated some of the geopolitical risks at least for now. Aside, post BI rate hike, Indonesia’s USD bonds opened slightly higher to print +0.125pt to +0.25pt for benchmark 28Ns and 48s. However, liquidity was thin.

 

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