Bond Market Weekly Commentary - 18 Apr 2008

Technorati Tags : Malaysia bond market, weekly commentary

The bond market was in selling pressure last week as inflationary concerns intensified in the global economy. The sell-offs in US Treasuries also provide the impetus for local market to react accordingly. Market players were also cautious on the possibility of a higher CPI data to be released on Wednesday. The short term bills market however found strong buying interest from offshore investors as USD/MYR touched a new low at 3.1410 on Thursday.

Midweek, Malaysian Economic Institute of Research (MIER) forecasted that Malaysian economy will grow by 5.4% in 2008. In addition to that, they also see the Overnight Policy Rate to remain unchanged at 3.50%.

Government Securities

Last week’s focus was on the reopening of the current 3-year benchmark MN09/11. The RM3.5 billion issue was auctioned in a range of 3.413% to 3.461% with the average seen at 3.438%. Bid to cover was quite poor at 1.47 times, signifying the lack of demand from real-money investors as well as the cautious sentiment ahead of March’s CPI data.

The average MGS trading volume improved to RM1.05 billion. Week-on-week saw the benchmark curves steepened as players were seen executing their cut loss strategies on the back of bond bearish outlook. The 3-year MN09/11 was traded to the high of 3.51% before late buying interest on Friday saw the yield retraced to 3.45%, about 3bps higher than last week. The 5-year MJ07/13 added 4bps to 3.51% while the 10-year inched 1bp higher to close at 3.76% after being sold to the high of 3.81% on Thursday. In the bills market, offshore interest was apparent in tandem with continued MYR appreciation. The 3-month and 6-month bills were aggressively bough throughout the week, pushing the closing levels lower to 3.23% and 3.30% respectively.

In terms of sovereign spreads, the 3/5s widened by 1bp to 6bps. The 5/10s and 10/20s spread narrowed by 3bps and 2bps to 25bps and 47bps respectively.

The Week Ahead

The direction of the market will be heavily influenced by March’s CPI data to be released on Wednesday. We could see further selling interest if the CPI is higher than the general market consensus of 2.80%. Perception that MYR is still undervalued shall spur additional buying interest in the bills and some short dated securities.

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