US Treasuries weakened to reverse last Friday's gains as yields rose 3bps along the 10T to close overnight at 2.86%. Losses came as advance US retail sales saw strong gains at 0.5% mom in Jun to meet forecast whilst the prior month's number was revised up to +1.3% mom from +0.8% prior estimate. Retail sales ex-autos rose 0.4% in Jun against 0.3% consensus. Last Friday, players heard points from the Fed's semiannual monetary policy report, in which it signaled no need to speed up pace of rate hikes after inflation hits 2.0%. The Fed's forecast range for PCE inflation is 2.0-2.1% in 2018, 2.0-2.2% 2019 and 2.1-2.2% 2020. However, last week US CPI came out at 2.9% yoy in Jun to meet consensus or the highest since Feb 2017. Earlier last week, the Trump administration mentioned plans for tariffs on additional $200b Chinese imports, kick-starting a public review period that will last for around two months before a final decision is made. This came after countries especially China had hit back at Trump's initial tariffs of 25% on $34b Chinese products – by imposing 25% tariffs on 545 US products worth $34b.
Malaysian government bonds closed mixed. Sentiment remained supported after last week's Bank Negara Malaysia MPC as well as reported bids from offshore since over a week ago. However, nervousness ahead of this week's CPI release and global trade worries held bonds against more positive gains on the day.
Malaysia's CPI for Jun is due this week with Bloomberg consensus at +1.3% yoy compared with +1.8% increase the month before, but after having dwindled to a growth of 1.3-1.4%% in the two months before that. We remain upbeat Malaysia's bonds. The neutral-to-dovish tint in the latest MPC statement amid low inflation should continue to support the underlying demand for MGS ‑ reflected in the recent rally with 10y MGS at 4.10% yesterday after rising to above 4.20% during May-Jun 2018.
In Indonesia, government bonds weakened in a quiet market as we towards the bond auction. Hint of support were still seen 5y and 10y benchmarks, but not much elsewhere. The government Is targeting to issuance of IDR10t in today's auction, with series auctioned being: 3m and 9m SPN bills, 5y FR63, 10y FR64, and 20y FR75. Flows fell to IDR5.3t.
Thai bonds were confined in a narrow range amid thin trading with outright activities only at Bt39.88b on Monday and the auction of 28-day T-bill failed in its third attempt to attract demand (lower 0.53 bid-cover and higher 1.30%-1.40% auction yield) from the market since the first selling on 2 Jul and the second selling on 9 Jul. Few bidding interest on LB316A and LB28DA from foreign players pushed their bidding yields lower by 5bps and 2bps, respectively and LB366A outperformed with last trade level at 3.03%. These helped keep yields lower by 1-2bps within 10-14y segment. Foreign investors returned to a net-buy position of Bt123m on Monday for the first time since 11 Jul.
Higher grade Asian dollar credits were boosted as investors remained wary of US versus China global trade war concerns while at the same time received news China's GDP grew by a slower 6.7% yoy in 2Q2018 versus +6.8% in 1Q2018 though meeting consensus expectation for the latest quarter. The latest GDP data slowed amid reports of slower investment in production capacity and infrastructure as Chinese authorities had placed limits on credit growth. Meanwhile, the primary market was also quiet, with Indonesia's Bank Rakyat heard marketing possible USD bonds.
CIMB Treasury & Markets Research-Fixed Income
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