US Treasuries gained with yields down 2-3bps along the shorter tenors, which came on hints of safe-haven demand especially amid volatility in Japan government bonds (JGBs). Earlier this week, BoJ came out dovish. BoJ maintained target of zero for 10y JGBs though widened the allowable range around which yields could move. This explains the JBG weakness as a steeper yield curve is possible (especially as banks would prefer wider spreads to make profit). BoJ also provided forward guidance for rates, saying current low rates will run for ‘and extended period of time’. Also, BoE hiked rates (+25bps to 0.75%) but said incoming rate hikes will be gradual and limited.
Also this week, FOMC left the fed funds rate (FFR) unchanged at 1.75-2.00% range but lifted its view of US economy compared with its view at the Jun FOMC meeting; it said ‘economic activity has been rising at a strong rate’. Pressure on Fed (and UST) had been maintained after US 2Q2018 GDP release late last week at firm annualized +4.1% qoq though lower against +4.2% consensus, whilst the prior quarter’s was upward revised to +2.2% from +2.0% previous estimate.
Also, there is some supply concerns in the short term period, the Treasury Department said it will auction $78b in notes and bonds next week in its quarterly refunding, or higher by $5b from last quarter. The $78b will refund $38.2b of privately-held US notes maturing 15 August, and will raise new cash of $39.8b.
Ringgit government bonds continued to rally. GII 10/28 led the way as it fell 3bp to 4.14% on RM810m volume. We also saw more signs of duration extending as MGS 04/33 fell 5bps to 4.51% on more than RM230m volume and MGS 11/33 edged 1bp to 4.49%. Meanwhile, also heavily traded was MGS 03/25 at 3.94%, down 1bp on RM240m volume.
Aside, the central bank released details for upcoming reopening auction of the 20y GII (GII 08/37). Amount up for auction would be RM2.5b with tender closing set for 6 Aug. WI was heard at 4.83% on the bid-side early but then fell to around 4.79/76% late Thursday, whilst secondary trading saw the 20y GII dealt at 4.79%.
IndoGBs drifted lower in a quiet market on Thursday. Recent net buying seems to have stalled and some profit taking activity was hinted at near closing hour. Quotes were less seen but centered on 5 and 10y benchmarks. Volume traded halved to IDR9t concentrated on belly and tail end of the curve.
Thai govvies curve was flatter with remaining buying interest on back-ends led by LB466A that has received overwhelming demand throughout this week and the bidding yield mildly fell about 1bp on Thursday. Meantime, bellies underperformed with yields trading up 1-2bp after the new round of additional tariffs on China's goods from the Trump's administration caused the Baht's depreciation and decreasing investors' risk appetite.
Despite US senate heard mulling delaying auto tariff imposition – senators Doug Jones (Democrat) and Lamar Alexander (Republican) introduced a bill to delay the 20-25% tariff on imports of cars and trucks – Trump is now reported to increase tariffs on $200b imports from China to 25% from 10%.
CIMB Treasury & Markets Research-Fixed Income
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