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Sunday, May 04, 2008

Bond Market Weekly Commentary - 02 May 2008

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Activities in the bond market were lackluster last week as players stayed sideline ahead of the MPC and FOMC meeting. The holiday shortened week also contributed to the lack of volume in the market. As expected, the Fed lowered the FFR by 25bps to 2.00%. The accompanying statement however mentioned the risk of recession is gradually reducing, thus signaling the end to the rate cuts. Overall the local bond market was traded in a tight range in the absence of any fresh leads to the market. Offshore support on the bills market seemed to dwindle in tandem with weaker MYR last week.

The Central Bank decided to leave the Overnight Policy Rate (OPR) unchanged at 3.50% for the 16th consecutive meeting. The Monetary Policy Statement (MPS) was slightly hawkish towards the upside risks to local inflation due to the impact of global price increases. Muted reaction from the market but it was interesting to note that the local bond market remained well supported although the rest of Asian rates have risen for the past 3 weeks.

Government Securities

The MGS market was relatively quiet as trading volume dropped to RM724 million compared to RM2.1 billion registered last week. A rather flat week saw focused was still on the 3-year benchmark M09/11. The stock closed 3bps lower to 3.46%. Only a single lot was traded on the 5-year MJ07/13 where it closed 1bp higher to 3.53%. Likewise, the 10-year MS02/18 and 20-year MX05/27 also received poor attention last week. The 10-year remained unchanged at 3.79% while the 20-year closed 1bp higher to 4.26%. In the bills market, the weaker MYR saw the bills closed much higher last week. The 3-month and 6-month bills were last traded at 3.35% and 3.34% respectively.

In terms of sovereign spreads, the 3/5s widened by 4bps to 7bps. The 5/10s narrowed by 1bp to 26bps whilst the 10/20s added 1bp to 47bps

The Week Ahead

In the absence of any major economic data, we expect the market to be range traded this week. Trading will also be closely aligned with the movement in USD/MYR.

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