Bond Market Weekly Commentary - 5 Dec 2008

Technorati Tags : Malaysia bond market, regional rate cuts, 10 year MGS auction

The local bond market continued to rally in tandem with heightened expectation of further rate cuts. Yields tumbled in line with the move in US Treasuries at the start of the week. The Government’s decision to cut petrol prices by 10 cents on Tuesday saw further buying in bonds as inflation concerns continued to be alleviated. On Wednesday, the market was buoyed by the larger than expected policy rate cut by the Bank of Thailand and this was followed by the weaker October export data released on Thursday. The market ended on a positive note for the week as players started to price in more rate cuts by the Central Banks during the first quarter of next year.

Out in the news, October exports fell for the first time in 15 months, contracting 2.6% from a year ago, from a 15% expansion in September, sharply disappointing consensus expectations for a 6.6% increase. The surprise contraction in October exports points to a weak start to the fourth quarter and increases the likelihood for further rate cuts in Q1 next year.

Government Securities

The highlight of the week was on the reopening of the new 10-year benchmark MS07/19. The When Issued for the stock was transacted in a range of 3.63 to 3.49%. The RM2.5 billion issue was oversubscribed by 2.19 times and issued at an average rate of 3.481% with the high and low seen at 3.50% and 3.45% respectively. The stock ended the week 18bps lower to 3.42%.

Trading volume in the government securities remained relatively unchanged at RM1.56 billion, with most trades went to short term off benchmark papers as investors sought some yield pick up in those stocks. The rest of the benchmarks rallied for the second consecutive week, albeit in smaller magnitude. The 3-year MN09/11 fell 7bps lower to 3.16% whilst the 5-year MN04/14 dropped 9bps lower to close at 3.28%. The search for duration saw the 20-year MX09/28 closed 22bps lower to 3.89%.

In terms of sovereign spread, the 3/5s and 5/10s spreads narrowed by 2bps and 16bps to 12bps and 14bps respectively while the 10/20s widened by 3bps to 47bps.

The Week Ahead

The bullish sentiment in the market is expected to continue this week. However, market players will be a bit cautious ahead of the release of the MGS auction calendar expected to be out by next week.

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Bond Market Weekly Commentary - 14 Nov 2008

Technorati Tags : Malaysia bond market, industrial production, 5 year MGS auction

Following last week’s rally, the local bond market continued its sterling performance to close stronger for the week. Gains in US Treasuries and weaker than expected September industrial production data were among the catalysts that led to a much flatter curve for the week. Sentiment was also driven by lower interest rate expectation as speculation of a rate cut in the upcoming MPC intensified.

Out in the news, Industrial Production fell 1.7% in September from a year ago, the first decline in 18 months, and a sharp drop from the 1.2% expansion in August. This was much worse than market expectations for a 0.6% increase. The surprise fall in September IP, especially electronics, suggest a sharp slowdown in 3Q08 GDP growth, likely close to 4-4.5% range or even below, reinforcing the notion that the global recession has finally caught up with Malaysia and increasing the likelihood of a rate cut in the upcoming MPC.

Government Securities

The focus in the MGS market was on the auction of the 5.4 year MN04/14. Prior to the auction, the When Issued was traded in a range of 3.90%-3.76%. The RM3 billion auction received a bid to cover ratio of 1.8 times and was issued at an average rate of 3.751% with the high and low seen at 3.78% and 3.697% respectively. Post auction, the stock was traded lower and close at 3.72%, 16bps lower from last week’s level. In tandem with the good response in the auction, the rest of the curves were traded lower for the week albeit in thin volume. Average daily turnover fell to RM1.3 billion compared to RM1.9 billion reported last week, with interest skewed towards the shorter end of the curve. The 3-year MN09/11 fell 11bps lower to 3.58% while the 10-year MS02/18 closed 3bps lower to 4.10%. The 20-year MS09/28 was lightly traded and closed 5bps lower to 4.58%. In the bills market, the 1-2 month bills fell to a 3-month low of 3.30% on the back of aggressive buying by local interbank players.

In terms of sovereign spreads, the 3/5s narrowed by 5bps to 14bps while the 5/10s widened by 13bps to 38bps. The 10/20s fell by 2bps to 48bps.

The Week Ahead

We expect the market to be traded range bound ahead of the MPC meeting. Focus will also be on the October CPI due to be released on Friday.

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Bond Market Weekly Commentary - 7 Nov 2008

Technorati Tags : Malaysia bond market, interest rate cut, 5 year MGS auction

After last week’s sell-offs, buying flows were back into the local bond market. The week started on cautious note as players stayed sideline ahead of the announcement of the revised economic forecasts and financial contingency stabilization plan on Tuesday. The Government lowered its GDP forecast for 2008 to 5% from 5.7% while the 2009 growth forecast was also cut to 3.5% from 5.4%. The 2009 deficit number was revised upward to 4.8% of GDP from 3.6%. The market was well bid thereon. Although the higher deficit could result in more bond issuance, thus, increasing the oversupply risk, the market seemed to be more concerned on the slower growth outlook, which increased the probability of a rate cut in the next MPC. Another highlight of the week was on the announcement of the 5-yar MGS auction. The RM3 billion issue was well within market expectation and the good response in the When Issue market has led to aggressive buying across the benchmark curves and ensured a strong finish for the week.

Government Securities

The bond market was buoyed by positive news during the week. The downward revision of 2009 growth and the absence of foreign funds selling were seen as the main factor that led to much flatter curve for the week. Average daily turnover fell to RM1.9 billion compared to RM2.8 billion reported last week. Details of the upcoming 5-year MGS auction were announced on Friday. The When Issued for the RM3 billion issue was last traded at 3.88%, 28bps lower than last week’s level for the existing 5-year benchmark. The bullish sentiment in the WI was followed by aggressive buying from the local players on other benchmarks. The 3-year MN09/11 closed 14bps lower to 3.69%. At the longer end of the curve, both the 10-year MS02/18 and 20-year MX09/28 closed lower by 17bps and 22bps to 4.13% and 4.63% respectively.

In terms of sovereign spreads, the 3/5s narrowed by 14bps to 19bps while the 5/10s widened by 11bps to 25bps. The 10/20s fell by 5bps to 50bps.

The Week Ahead

Increased expectation of a rate cut in the next MPC shall see the bullish sentiment in the bond market to remain. The market will also be focusing on the 5-year MGS auction this week.

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Bond Market Weekly Commentary - 31 October 2008

Technorati Tags : Malaysia bond market, dovish MPS, foreign funds liquidation

Despite the dovish MPS last Friday, the bond market was under heavy selling pressure for the week. The weakness in emerging market currencies including MYR was seen as the main factor that led to the outflow of foreign funds from the bond market. The midweek rate cut by the Fed, China, Taiwan, Hong Kong and Korea failed to lift market sentiment and the sell down in bonds continued until the end of the week. Out in the news, the Government announced another cut in fuel prices on Friday, a RM0.15 reduction to RM2.15 per liter. The decision was made in tandem with the recent collapsed in crude oil and this is expected to further ease the inflationary pressure going forward.

Government Securities

Led by foreign funds liquidation in MGS, the market closed weaker for the week. Average daily turnover picked up to RM2.3bn compared to RM2.1 billion reported last week. The highlight of the week was on the auction of the 10-year GII. The RM3.5bn issue was quite well received by the investors, judging by the decent bid to cover ratio of 1.65 times. The stock was issued at an average rate of 4.295% with the high and low seen at a tight range of 4.32% and 4.26% respectively. Post auction, the stock closed a tad higher at 4.29%. The other part of the benchmarks also closed steeper for the week. The 3-year MN09/11 closed 9bps higher to 3.83%. Some forced selling on the 5-year MJ07/13 led the stock to close 33bps higher to 4.16%, although some non-interbank deals were reportedly done at a high of 4.26%. At the longer end of the curve, both the 10-year MS02/18 and 20-year MX09/28 closed higher by 17bps and 20bps to 4.30% and 4.85% respectively.

In terms of sovereign spreads, the 3/5s widened by 24bps to 33bps while the 5/10s narrowed by 16bps to 14bps. The 10/20s increased slightly by 3bps to 55bps.

The Week Ahead

As global central banks are focusing on stimulating the economy, there will be further rate cuts announced in the near term. This could provide an impetus for BNM to do the same in their next MPC on Nov 24. Although there could be further liquidation by foreign funds, the expectation of a rate cut will likely to limit any significant weaknesses in the MGS market.

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Bond Market Weekly Commentary - 24 October 2008

Technorati Tags : Malaysia bond market, dovish MPS, bullish Malaysian bonds

The bond market was fairly quiet at the start of the week as players stayed sideline ahead of the policy speech by the Finance Minister on measures to address the economic slowdown. Apart from some initiative to boost foreign investment and the local stock market, there were no other comprehensive measures announced, hence the bond market remained lackluster. Buying interest picked up during the middle of the week in reaction to the dovish statement made by the Domestic Trade and Consumer Affairs Minister on the lower inflation outlook for September. Offshore players were seen buying the short term government securities as speculation on interest rate cut intensified. Local players however, were seen reducing positions on Thursday ahead of the announcement of the auction details on the 10-year GII. Coupled with some profit taking activities at the end of the week, bonds closed slightly weaker although the downtrend in yields remained intact.

Out in the news, CPI eased to 8.2% in September, in tandem with the recent reduction in fuel prices and in line with market consensus. The much awaited rate decision in the MPC meeting saw the OPR being maintained at 3.50%. The accompanying MPS however emphasized on the slower growth outlook and continued moderation in inflation, thus signaling a rate cut may come sooner than expected.

Government Securities

The MGS market closed weaker for the week as technical correction took place after 3 weeks of consecutive gains. Focus of the week was on the announcement of the 10-year GII. The RM3.5 billion issue was within market expectation. Nevertheless, the longer duration of the bond caused some selling pressure on the other part of the curve and saw the MGS market ended softer for the week. Average daily turnover increased slightly to RM2.1 billion compared to RM2 billion reported last week. The 3-year MN09/11 closed 8bps higher to 3.74% whilst the 5-year MJ07/13 added 5bps to close higher at 3.83%. Significant reduction in the trading volume for the 10-year MS02/18 saw the stock traded sideways before closing 5bps higher to 4.13%. Some odd lot of non-interbank trade was reportedly done for the 20-year MS09/28 at 4.65%, 5bps lower than last week’s level.

In terms of sovereign spreads, the 3/5s narrowed by 3bps to 9bps while the 5/10s remained unchanged at 30bps. The 10/20s gapped down by 10bps to 52bps.

The Week Ahead

This week’s focus will be on the auction of the 10-year GII. In view of the dovish MPS released last Friday, we expect the auction to be well received by investors. After last week’s correction, buying interest shall revisit the market and the bullish sentiment shall remain until the next MPC in November.

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Bond Market Weekly Commentary - 17 October 2008

Technorati Tags : Malaysia bond market, global financial turmoil, bullish Malaysian bonds

The bond market started the week on a softer note with profit takers dominated the market. Bonds continued to be well offered on the back of the biggest intraday rally in the global stock market on Tuesday. Sentiment however, turned bullish after the Government announced another cut in fuel prices, a RM0.15 reduction to RM2.30 per liter on Wednesday. The midweek knee jerk buying on safe haven in reaction to the crumble of major equity indices spurred further rally in bonds. Some late offshore buying interest on Friday fueled by speculation on the imminent rate cut in the next MPC meeting ensured a strong finish to the week.

Government Securities

The MGS market continued its impressive run and closed stronger for the 3^rd consecutive week as safe haven remained as the theme for the week. Although technical correction took place at the start of the week, MGS were back in demand following the midweek global stock market crash. The further reduction in fuel prices also contributed to the feel good factor that saw a strong finish to the sterling week. Average daily turnover increased slightly to RM2 billion compared to RM1.9 billion reported last week. The 3-year MN09/11 closed 10bps lower to 3.66% after being traded in a volatile range of 3.94% - 3.63%. The 5-year MJ07/13 shed 5bps to close lower to 3.78%, thanks to the short covering activities. At the longer end of the curve, the 10-year MS02/18 fell by 11bps to 4.08% while the 20-year MS09/28 ended the week as the biggest gainer in price term after closing at 4.70%, 10bps lower than last week’s level.

In terms of sovereign spreads, the 3/5s widened by 5bps to 12bps while the 5/10s narrowed by 6bps to 30bps. It is interesting to note that despite the recent flattening in benchmark curves, the 10/20s remained relatively unchanged at 62bps.

The Week Ahead

Focus will be on the MPC rate decision and September inflation data, both scheduled to be announced by midweek. The market will also be eyeing on the details of the 10-year GII issuance to be auctioned at month end.

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Bond Market Weekly Commentary - 10 October 2008

Technorati Tags : Malaysia bond market, global financial turmoil, coordinated rate cuts

The bond market continued to be buoyed by safe haven flows as equity market tumbled around the world. The coordinated rate cuts by global central banks on Wednesday was taken positively by the market as more countries have shifted their focus from inflation to growth and further rate cuts are expected to be exercised in the near future. Although BNM is not expected to cut OPR in the near term, lower interest rate expectation saw a much lower and flatter yield curve for the week.

Out in the news, Industrial Production growth moderated to a 12-month low of 0.9% y-o-y in August, lower than consensus estimate of a 1.9% growth. This is in line with the moderating growth seen in August exports, which slowed by more than half (+10.6%) versus July (+25.3%) and seems to confirm the early signs that the effects of the global slowdown are finally beginning to hit the local economy.

Government Securities

The bullish sentiment in the bond market continued for the week as investors turned to safe haven on the back of global financial turmoil. The midweek rate cut by the US and European central banks triggered some knee jerk buying on MGS and led to stronger closing for the week. The significant drop in crude oil was also seen as the catalyst to the rally as the market prepares for another cut in fuel prices this month. Average daily turnover increased to RM1.9 billion compared to RM900 million reported last week. The 3-year MN09/11 garnered the most market share and touched a yield low of 3.65% before closing at 3.76%, about 3bps lower from last Friday. Trading remained minimal on the 5-year MJ07/13 which closed 9bps lower to 3.83%. The 10-year MS02/18 was the biggest gainer for the week, dropping 29 lower to 4.19% while the 20-year MS09/28 shed 19bps to close lower at 4.80%.

In terms of sovereign spreads, the 3/5s narrowed by 6bps to 4bps. The 5/10s was also lower by 20bps to 36bps while the 10/20s widened by 10bps to 61bps.

The Week Ahead

We expect some correction in the bond market after the strong run for the past couple of weeks. Nevertheless, the bullish trend should remain intact given the prospect of more rate cuts by the global central banks.

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Warren Buffet Drove Hard Bargain With Goldman

Technorati Tags : Warren Buffet, Goldman Sachs, Wall Street Journal

This article was taken from Wall Street Journal. A very interesting read indeed:

For six months, as the credit crisis deepened, billionaire investor Warren Buffett turned away a string of Wall Street firms that came hat in hand looking for help.

On Tuesday, Mr. Buffett says, he was sitting with his feet on his desk in Omaha, drinking a Cherry Coke and munching on mixed nuts, when he got an unusually candid call from a Goldman Sachs Group Inc. investment banker. Tell us what kind of investment you'd consider making in Goldman, the banker urged him, and the firm would try to hammer out a deal.

Warren Buffett

That midday call from Goldman's Byron Trott, who had done deals with Mr. Buffett for years, touched off a rapid chain of events. Within hours, Goldman had announced that Mr. Buffett's Berkshire Hathaway Inc. would invest $5 billion in Goldman -- a move viewed by many investors as a vote of confidence in the nation's reeling financial system.

The swiftness of the deal underscores the intense pressure now faced by Goldman, long regarded as one of the most financially secure firms on Wall Street. Over a 10-day stretch this month -- amid federal bailouts of Fannie Mae, Freddie Mac and American International Group and a bankruptcy filing by Lehman Brothers Holdings Inc. -- Goldman shares dropped 36%. Investors began asking questions about whether it had the capital to survive. On Sunday night, Goldman secured federal approval to become a bank holding company, ending 139 years as a securities firm.

On Wednesday, Goldman said it had completed a separate $5 billion stock offering, double the size of the offering announced on Tuesday. Its shares jumped $7.95 to $133 in 4 p.m. New York Stock Exchange trading, although they remain far below their 52-week high of more than $250. The deal with Mr. Buffett and the stock offering means Goldman shareholders could eventually have their stake diluted by as much as 20%.

Mr. Buffett's decision to invest now in Goldman gives an indication of how the famed investor believes the financial crisis might shake out. At a minimum, he regards Goldman as a survivor, although the firm's profits could be pinched as it adjusts to life as a banking holding company, taking fewer risks and facing heightened regulation.

In a telephone interview Wednesday morning from his office in Omaha, Mr. Buffett said he believes the proposed federal bailout will be approved by Congress and that it will succeed. "The government has a great opportunity," he says. "If they buy things at market prices with the government's cheap funding, they should make a lot of money."

If Congress fails to approve the bailout, Mr. Buffett says, all bets are off. His investment in Goldman will "get killed, and so will all our other investments."

Goldman's moves in recent days mark a repudiation of the strategy that catapulted the firm to enormous success. At one time, Goldman was a white-shoe investment bank that made its mark advising corporate clients on deals. In recent years, it became a hard-charging trading firm, more akin to a hedge fund than a bank. Run by Lloyd Blankfein, a former gold salesman, Goldman borrowed enormous sums to fund big trades. Profits soared, and the rest of Wall Street -- from Merrill Lynch & Co. to Lehman to Morgan Stanley -- followed suit.

Lloyd Blankfein

Neither Mr. Blankfein nor Mr. Trott, the Goldman banker who reached out to Mr. Buffett, responded to requests for comment.

This year, as the credit crunch tightened its grip, investment banks began to suffer. At first, Goldman reveled in its position as one of the strong players. Unlike many competitors, it hasn't posted a quarterly loss during the crisis.

But Goldman appeared to miscalculate how serious and how long the crisis would be. "We're probably in the third or fourth quarter," Mr. Blankfein said in April. "We're closer to the end than we are to the beginning." In June, Goldman's chief financial officer echoed those views. Even last week, as Goldman reported its worst quarter since becoming a public company in 1999, executives dismissed the notion that Goldman couldn't survive the storm without radical action.

'Should I Go On?'

Out in Omaha, Mr. Buffett had been fielding calls for months from Wall Street firms and other investors who wanted him to take part in rescue efforts. The first major pitch came on Saturday, March 15. Bear Stearns was reeling after clients had removed billions of dollars from the securities firm. Federal regulators were pushing for a white knight to buy Bear Stearns before the Asian markets opened late the following day.

Mr. Buffett received a call at 4:30 p.m. that Saturday from a private investment firm trying to assemble a group to buy the embattled financial giant. "I'm calling about Bear Stearns,'" the private investor began, according to Mr. Buffett. "Should I go on?'"

Mr. Buffett recalls thinking: "It's like a woman taking off half her clothes and asking, 'Should I continue?' Even if you're a 90-year-old eunuch, you let 'em finish." Mr. Buffett says he passed on the proposed deal. Bear Stearns was bought by J.P. Morgan Chase & Co. the following day.

A few weeks later, in April, Lehman executives made a pitch to Mr. Buffett to participate in a round of financing. Mr. Buffett says he felt the Lehman offer was unrealistic and he decided not to participate.

Lehman went on to raise billions of dollars more from other investors at terms similar to those it offered Mr. Buffett. But the pressure continued to build. Talks with a Korean bank failed to materialize. The government brought two ailing mortgage giants, Fannie Mae and Freddie Mac, into federal conservatorship. The financial markets were rickety.

By Saturday, Sept. 13, Lehman was collapsing and insurance giant American International Group Inc. was on the ropes. Mr. Buffett was in Edmonton, Canada, at a charity dinner when he started getting calls about AIG. Fielding calls throughout the weekend, Mr. Buffett considered a $5 billion insurance transaction, part of a larger effort to save the insurer that involved other investors. That transaction fell apart, and the Federal Reserve assembled an $85 billion bailout package for AIG three days later.

This past weekend, Goldman's top leadership -- Mr. Blankfein, co-presidents Gary Cohn and Jon Winkelried, and chief financial officer David Viniar, among others -- discussed ways to raise capital. The executives figured with the market's current emphasis on safety and soundness, the firm might need more capital, according to people familiar with the matter.

The executives soon zeroed in on Mr. Buffett as an ideal option. His holding company, Berkshire Hathaway, had often used Goldman as an investment banker on deals. His reputation, both for smart investing and solid ethics, would likely give investors the reassurance they needed, the executives reasoned.

Mr. Trott had approached Mr. Buffett before with at least one offer to invest in Goldman. "They had sounded me out in the past, as everyone else had," Mr. Buffett says. The previous offer, he says, was "nothing I would say 'yes' to."

"The swiftness of the deal underscores the intense pressure now faced by Goldman, long regarded as one of the most financially secure firms on Wall Street."

On Tuesday, however, Goldman put the ball squarely in Mr. Buffett's court. Mr. Buffett is famous for making quick investment decisions based on his gut. For the Goldman deal, he says, "I didn't see a book. I just made a judgment." The quality of Goldman's management team and its franchise, he says, sealed the deal for him.

He didn't insist on a complicated term sheet, he says. Instead, he spent 15 minutes with Mr. Viniar, Goldman's chief financial officer, outlining points of the deal. "They asked me about this or that," he says. "It sounded fair."

By the time markets closed in New York at 4 p.m., Mr. Trott was sealing the deal with a final call to Mr. Buffett. Mr. Blankfein was in Washington for the day to brief members of Congress about the state of the markets. After the deal was struck, he called Mr. Buffett. "We talked for five minutes," recalls Mr. Buffett, who says he told Mr. Blankfein to "keep working."

Mr. Buffett left his office at 7 p.m. and spent the evening reading the newspapers and "nibbling" on Cheetos and licorice pastel candies. He says Mr. Trott "called me once or twice to tell me what was going on with the equity offering." Mr. Buffett was asleep by 10:30 p.m.

Goldman executives were working the phones in hopes of raising more capital. Armed with a list of about two dozen of the firm's top investors, executives canvassed shareholders to see if they'd be willing to add to their Goldman holdings. It was an all-night affair.

Mr. Winkelried fine-tuned the details of the Buffett investment, and David Solomon, the firm's co-head of investment banking, coordinated the stock offering. By 8 a.m. on Wednesday, the group had gathered on the 50th floor of a Goldman building in downtown Manhattan to figure out who would get shares and at what price. They finished in time to announce a $5 billion offering, shortly before 9:30 a.m.

Sweet Deal

For his $5 billion, Mr. Buffett receives "perpetual" preferred shares that aren't convertible into equity, but pay a 10% dividend. That payout equates to roughly $1.3 million each day. He also has warrants to buy Goldman shares at $115, which, if he exercised Wednesday would theoretically net him a profit of more than $600 million. If Goldman's earnings grow at a modest pace, he could make a tidy profit, some investors say.

Some investors are griping about what they say is a sweet deal for Mr. Buffett. But some Goldman shareholders say Wednesday's stock offering was too good to pass up. "The valuation was right, the business expertise, we feel, is unparalleled, and the money coming in from Warren Buffett at this time was a catalyst to add to our position," says Tom Marsico, CEO of Denver-based Marsico Capital Management LLC, one of Goldman's largest investors.

Mr. Buffett's investment isn't without risk. As a commercial bank, Goldman will be forced to curb much of the risk taking that generated big profits. Hedge funds and private-equity firms are likely to try to lure away Goldman's stars with fatter pay.

The question now: Will Mr. Buffett -- whose firm has invested a total of about $24 billion in a number of ventures in recent months -- plunk down more money on Wall Street?

He says he remains interested in some of AIG's businesses "if they are available." He adds: "I still have some money left."

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Bond Market Weekly Commentary - 26 Sep 2008

Technorati Tags : Malaysia bond market, fuel price cut, festive holidays

The bond market was well supported despite the sell-off in US Treasuries at the start of the week. The announcement of the 3-year MGS reopening amounting to RM3 billion was well received by the market and buying interest was apparent thereon. Although players traded cautiously ahead of the August CPI on Wednesday, the market remained resilient and ended the week on a positive note. Out in the news, August CPI remained unchanged at 8.50%, slightly above market consensus of 8.40%. Despite the high CPI reading, inflation is expected to moderate in the coming months in view of falling global food and fuel prices. The Government also announced another RM0.10 cut in petrol prices to RM2.45 per liter effective Thursday.

Government Securities

The government securities market was traded range bound at the start of the week before buying interest flocked the market post announcement of the 3-year MGS. The average daily turnover fell slightly to RM1.37 billion compared to RM1.6 billion registered last week. Focus for the week was on the reopening the 3-year MGS MN09/11. The When Issued for the RM3billion issue was traded in a range of 3.96% - 4.05%. The auction fetched a decent bid to cover ratio of 2.2 times and was issued at an average rate of 3.983%, with the high and low seen at 4.002% and 3.95% respectively. Trading interest was also apparent at the short end of the curve with the off-benchmark stocks maturing in 2009 & 2010 were well demanded by both local and offshore investors. Week on week saw the 3-year MN09/11 closed 6bps lower to 3.97% whilst the 5-year MJ07/13 fell 2bps lower to close at 4.08%. At the longer end of the curve, the 10-year MS02/18 continued its impressive run by closing 6bps lower to 4.65% while the 20-year MX09/28 shed 5bps lower to 5.15%. Short term bills closed below 3.50% as a result of a strong demand from corporate investors.

In terms of sovereign spreads, the 3/5s widened by 4bps to 11bps. The 5/10s narrowed by 4bps to 57bps while the 10/20s inched up by 1bp to 50bps.

The Week Ahead

The holiday shortened week shall see a range bound trading market with little volume. As most traders will be away for the festive holidays, we do not see any major changes in the market next week.

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Bond Market Weekly Commentary - 19 Sep 2008

Malaysia bond market, fuel price cut, global credit crisis

The credit crisis in the global financial market led by the bankruptcy of Lehman and the bail out of AIG has shifted the investment focus towards the safe haven assets as equity market tumbled significantly during the week. The bond market rallied at the start of the week in tandem with the huge gain in US Treasuries. Speculation on Fed rate cut also contributed to sizeable buying flows from interbank and corporate players. The Fed however maintained the benchmark rate at its current level and technical correction took place on Wednesday. Coupled with weaker MYR and uncertain political development, bonds erased earlier gains and looked softer by midweek. Nevertheless, selective buying by underinvested funds saw the market closed slightly stronger as at the end of the week.

Government Securities

The volatile week saw turnover in government securities increased to RM1.6 billion compared to RM1.08 billion traded last week. In tandem with US Treasuries, the market started on solid ground and was well supported by good buying flows. The significant downward move in yields also triggered aggressive short coverings at the long end of the curve and yields continued to plunge by midweek. Although the market corrected on the back of FOMC inaction on rates, it has certainly recovered from the post budget slump due to over supply concerns. The significant fall in oil and commodity prices has eased the global inflationary pressure and despite the still high local headline inflation, the pressure is clearly lower with potential cuts in pump prices in the coming months. The 3-year MN09/11 dominated the volume for the week and was traded to a low of 3.87% on Tuesday before closing 1bp lower to 4.03%. Liquidity in the 5-year MJ07/13 was much improved and the stock closed 5bps lower to 4.10%. At the longer end of the curve, the 10-year MS02/18 closed 7bps lower to 4.71% after touching its 3-month low of 4.56% on Tuesday whilst the 20-year MX09/28 received good demand post auction and closed 6bps lower to 5.20%. The short term bills closed unchanged at 3.53%.

In terms of sovereign spreads, the curve continue to flatten with the 3/5s, 5/10s and 10/20s gapped down by 4bps, 2bps and 1bp respectively.

The Week Ahead

Focus this week will be on the announcement of the 3-year MGS re-opening and players are expecting an issue size between MYR3 – 3.5 billion. Bearing any surprises in the issue size, we expect buying interest to reemerge after the recent correction.

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Bond Market Weekly Commentary - 12 Sep 2008

Technorati Tags : Malaysia bond market, 20-year MGS, IPP windfall levy

The bond market had a slow start for the week as players stayed sideline ahead of the 20-year MGS announcement. Trading activities picked up during the middle of the week as local players reacted to the lower than expected issue size of the 20-year MGS. Good flows were seen from insurance players and this has spurred further buying interest across the curves. News that the Government will discontinue the windfall profit levy on independent power producer (IPP) was positively received by market players and this ensured a strong finish for the week.

Out in the news, Industrial Production (IP) slowed to an 11-month low of 1.8% y-o-y in July, slightly lower than consensus estimate at 2.1%. The slowdown in IP signals some degree of moderation in the economy despite the still robust growth in export. With the global economic growth slowdown becoming more pronounced, exports and IP growth would likely soften in the coming months, as the lackluster external demand would probably lead to a cutback in production. However, resilience in domestic demand as indicated by strength in imports would provide the necessary support to offset some negative impact from waning external demand.

Government Securities

In line with the usual auction ritual, turnover in government securities increased to RM1,075 million compared to RM865 million traded last week. Although the market started on a cautious note ahead of the 20-year MGS announcement, buying interest was apparent during the middle of the week as players reacted to the lower than expected issue size for the 20-year MGS. Local flows continued to flock the market and with insurance players joining the buying fray, sentiment continued to remain bullish for the rest of the week. The 3-year MN09/11 dominated the volume for the week and was traded to a low of 3.99% before closing 14bps lower to 4.04%. The 5-year MJ07/13 was lightly traded before closing 19bps lower to 4.15%. Trading in the 10-year MS02/18 was rather choppy and saw an intra week swing of 30bps. The stock was bought to the week’s low of 4.73% before retreating on profit taking activities to close 23bps lower to 4.78%. The When Issued for the new 20-year benchmark MX09/28 was traded in a range of 5.18%-5.24% prior to its auction. The RM2 billon stock was auctioned on Friday with a commendable bid to cover ratio of 1.94 times. The stock was issued at an average rate of 5.248% with the high and low seen at 5.30% and 5.20% respectively. Post auction, the stock was lightly traded and closed at 5.26%. Despite the volatile USD/MYR, short term bills closed relatively unchanged at 3.53%.

In terms of sovereign spreads, the 3/5s and 5/10s narrowed by 5bps and 4bps to 11bps and 63bps respectively.

The Week Ahead

We expect further buying on the 20-year MGS and this could spearhead another bullish run for MGS this week. Nevertheless, players will be a bit cautious ahead of the 3-year MGS auction at the end of the month and this could cap the bull run.

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Bond Market Weekly Commentary - 5 Sep 2008

Technorati Tags : Malaysia bond market, bond bloodbath

The selling pressure resulting from the higher than expected budget deficit continued this week as players reacted to the revised auction calendar issued by BNM on Monday. Increasing concerns towards the oversupply factor saw yield curve continue to steepen for the week. The fact that MYR continued to weaken against the greenback and closed at the year’s high of 3.4600 also contributed to the bearish sentiment in the market.

Out in the news, export growth accelerated to 25.4% in July, from a revised 18.6% in June, significantly above consensus expectations of 14.5% and accelerating from 20.8% in 2Q08. Despite the slowdown in global economy and falling commodity prices, July trade surplus surged to the second highest on record. While some slowdown is inevitable given the global slowdown in 2H08, robust imports and a large trade surplus suggest a degree of resilience in economic growth.

Government Securities

Turnover in government securities fell to RM865 compared to RM1.2 billion traded last week as players stayed sideline and remained cautious ahead of the announcement of the 20-year MGS auction. The market started the week on a weaker note in reaction to the revised auction calendar issued by BNM and never recovered from that. There will be 6 more public issues for the rest of the year, an additional 2 issuances compared to the original calendar. In addition to that, there will also be 5 private placements to be conducted until year end. Selling pressure was imminent throughout the week as players continued to shed their position in anticipation of higher bond issuance for the rest of the year. The 3-year MN09/11 was the most active stock for the week, rising 26bps higher to close at 4.18% whilst the 5-year MJ07/13 was lightly traded before closing 34bps higher to 4.34%. The 10-year MS02/18 breached the psychological 5.00% mark and closed 19bps higher to 5.01%. No trade was reported on the 20-year MX05/27. In the bills market, offshore players were seen liquidating their position in tandem with weaker MYR. The 1-3 month bills closed 5bps higher to 3.55% in heavy trade.

In terms of sovereign spreads, the 3/5s widened by 12bps to 16bps whilst the 5/10s narrowed by 19bps to 67bps.

The Week Ahead

We expect sentiment to remain bearish ahead of the 20-year MGS auction. Market direction will also be largely influenced by the movement in spot USD/MYR.

Writer's view

The bond market is totally in deep shit now. Although BNM will hold the OPR at 3.50% for the rest of the year, the market can't stomach a total of RM6 billion worth of issuance in the space of 3 months. Expect the bloodbath to continue especially after the annoucement of 20-year MGS tomorrow. A simple direction towards trading....short whatever u can short.

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Bond Market Weekly Commentary - 29 Aug 2008

Technorati Tags : Malaysia bond market, budget deficit

Trading interest in the local bond market picked up for the week despite the higher than expected July’s CPI. The dovish MPS following the Central Bank’s decision to maintain the OPR at 3.50% was seen the catalyst for the rally in bonds at the start of the week. With corporate and real money investors joining the buying fray, the market maintained its bullish note for most part of the week. The Permatang Pauh by-election had no impact on the market despite the continued weakness in MYR. The market however, ended the week on a softer note as profit taking activities took place ahead of the 2009 budget tabling on Friday. News that the 2008 budget deficit will hit 4.8% of GDP, much higher than the original deficit plan of 3.1%, saw continued selling pressure on the bonds as players anticipated a larger bond issuance to meet the Government’s financing requirement for the year.

Government Securities

Government securities was actively traded during the eventful week with average daily turnover jumped to RM1.2 billion compared to RM634 million reported last week. The market started on a positive note as players took cue from the dovish MPS that dashed any likelihood of a rate hike for the rest of the year. Short covering activities at the longer end of the curve also contributed to lower yields at the earlier part of the week. However, the market succumbed to late selling pressure on Friday resulting from the higher 2008 budget deficit. The 3-year MN09/11 closed 7bps higher to 3.92% whilst the 5-year MJ07/13 was lightly traded before closing 4bps lower to 3.96%. Trading in the 10-year MS02/18 was rather volatile for the week. After being bought to the low of 4.68%, the stock was aggressively sold towards the end of the week and close 1bp higher to 4.82%. Some odd lot of the 20-year MX05/27 was traded at 5.05%, 3bps lower than last week’s level.

In terms of sovereign spreads, the 3/5s narrowed by 7bps to 4bps whilst the 5/10s widened by 5bps to 86bps. The 10/20s meanwhile shed 4bps lower to 23bps.

The Week Ahead

We expect the selling pressure to continue as players started to digest the impact of higher budget deficit on the bond market. The market will also be cautious ahead of the announcement of the 20-year MGS issuance in September.

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Bond Market Weekly Commentary - 22 Aug 2008

Technorati Tags : Malaysia bond market, fuel prices

Trading in the bond market remained lackluster as players stayed sidelined ahead of the July CPI announcement on Friday. Yields were pretty much unchanged from last week’s level. Most players turned their attention to the bills market as strong offshore buying were seen despite the continued weakness in MYR. Out in the news, July CPI jumped to 8.50%, far exceeding market expectation of 7.80% as a result of second round effect from the recent fuel and electricity price hike. The announcement came at the same time as the news that the petrol price will be reduced to RM2.55 per liter from RM2.70 effective 23 August.

Government Securities

The MGS market was fairly quiet for the week as most dealers were away for the school holidays. The average daily turnover stood at a mere RM538 million. MGS was traded range-bound for the whole week players stayed sidelined ahead of the release of July CPI. The market closed on a softer note as players anticipated a much higher CPI print on Friday. The 3-year MN09/11 closed unchanged at 3.89% while the 5-year MJ07/13 fell 11bps lower to close at 4.00%. The 10-year MS02/18 continued to be in focus and was traded to the low of 4.76% before closing 1bp higher to 4.81%. The 20-year MX05/27 saw some decent amount of trade transacted and closed lower at 5.08%. Contrary to the MGS, the bills market was actively traded. Offshore players were seen aggressively buying the 3 and 6 months bills despite MYR scaled another high of 3.3440 as at the end of the week. The 3-6 month bills closed 5bps lower to 3.45% in heavy trade.

In terms of sovereign spreads, the 3/5s narrowed by 11bps to 11bps whilst the 5/10s widened by 12bps to 81bps.

The Week Ahead

The focus this week will be on the MPC rate decision on Monday. Some knee-jerk selling reaction could be seen as a result of the much higher than anticipated July CPI. However, the reduction in fuel price could reignite buying interest particularly from the underinvested funds and may cushion any sell-off effect.

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Bond Market Weekly Commentary - 8 Aug 2008

Technorati Tags : Malaysia bond market, USD/MYR

The bond market was fairly quite for most part of the week and was traded range bound in the absence of any fresh leads. However, sentiment turned bearish during the latter part of the week as players took cue from the weaker MYR and higher swap rates. Offshore investors were seen liquidating their positions in short-term bills. The sell down in the bills spilled over to the bonds as well. The announcement of the RM3.5 billion 5-year new GII issuance was also seen as the contributing factor that led to higher yields for the week.

Out in the news, export growth moderated to 18.4% in June, from 22.9% in May, but in line with market consensus. Likewise, import growth accelerated to 12.1% from 9.4% in May, above market expectations for a 10.3% increase, perhaps hinting at some resilience in domestic demand. Given the strength of exports and weaker imports, the monthly trade balance narrowed to RM12.97bn from a record RM15.6bn in May. Despite the narrowing, this was still the second-highest monthly trade surplus on record.

Government Securities

Trading in the MGS market was rather lackluster with the average daily turnover fell to RM581 million compared to RM889 million registered last week. MGS was traded sideways for most part of the week as players stayed sidelined ahead of the FOMC rate decision on Wednesday. The announcement of the new 5-year GII on Thursday pushed yields higher across the benchmark curves. The When Issued for the stock was traded in a range of 4.29% to 4.24% before settling at 4.27%. The fact that MYR weakened considerably and closed higher at 3.3025 led a massive exodus of offshore investors, particularly in the short-term bills market. The 1-3 month bills closed 23bps higher to 3.50% in heavy trade. Other benchmark curves were also traded higher in tandem with the bills. The 3-year MN09/11 closed 12bps higher to 3.95% whilst the 5-year MJ07/13 added 17bps to close at 4.11%. Trading in the 10-year MS02/18 saw a tug of war between the offshore sellers and local buyers. Strong local support was seen at 4.75% level for most part of the week before late selling pressure on Friday pushed the closing yield higher by 14bps to 4.85%. No trade was reported for the 20-year MX05/27.

In terms of sovereign spreads, the 3/5s widened by 5bps to 16bps whilst the 5/10s narrowed by 3bps to 74bps.

The Week Ahead

The focus this week will be on the 5-year new GII issuance. Sentiment will also be closely aligned to the movement in USD/MYR. We expect MYR to weaken further and the bearish sentiment on bonds to persist for the rest of the week.

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