Bond Market Weekly Commentary - 27 June 2008

Technorati Tags : Malaysia bond market, inflation and growth

The week started with some aggressive sell down in bonds as players reacted to the announcement of the new Islamic benchmark issuance on Monday. The market was also cautious ahead of the FOMC meeting on Wednesday. Post FOMC, the market recovered slightly in tandem with the rally in US Treasuries. Dovish remark made by the 2^nd Finance Minister on the inflation outlook spurred some corporate buying activities at the short end of the curve. The week ended on a positive note as yields gapped down from its intra-week highs albeit in thin volume.

Government Securities

It was another volatile week for the MGS market. Sentiment was mainly driven by the activities in the 3-year new Islamic benchmark. At the start of the week, yields spiked up between 5-30bps as players reacted to the announcement of the RM3.5 billion 3-year GII issuance. Although the When Issued was traded between 4.42-4.365, the stock was tendered at a very wide range, from the low of 4.08% to the high of 4.38% with the average seen at 4.363%. Post auction, aggressive short coverings pushed the yield to a low of 4.04% before settling at 4.15%. Likewise, its conventional counterpart MN09/11 was sold to the high of 4.33% before retracing to close 4bps higher to 4.10%. The 5-year MJ07/13 recorder a poor turnover for the week and was last traded at 4.22%, 11bps higher than last week’s closing. At the longer end of the curve, the 10-year MS02/18 and 20-year MX05/27 closed the week 25bps and 5bps higher to 4.85% and 5.10% respectively.

In terms of sovereign spreads, the 3/5s widened by 7bps to 12bps. The 5/10s added 14bps to 63bps while the 10/20s narrowed by 20bps to 25bps.

The Week Ahead

We expect the market to be traded range bound in the absence of any fresh leads.

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Bond Market Weekly Commentary - 20 June 2008

Technorati Tags : Malaysia bond market, inflation and growth

The bond market started with some renewed buying interest following up on Governor’s Zeti dovish comment that growth should taper off in the coming months and the recent price increases are driven by rising production cost rather than demand-pull factors. However, sentiment turned bearish on the news that the Sabah Progressive Party will table a no-confidence vote against the PM. The political uncertainty coupled with higher than expected May CPI saw yields spiked up across the curve. Offshore players were seen unwinding their position in the short-dated bonds while at the longer end of the curve there were just offers without any meaningful bids. The short term bills however were very well supported by the local players. Auctions conducted by the Central Bank received a commendable oversubscription rate and the week ended with most of the bills closing below 3.50%.

Out in the news, May CPI registered a y-o-y increase of 3.80%, higher than market expectation of 3.40%. This was the fastest increase in 22 months and largely reflects the higher food prices. Interestingly, the huge jump in May comes even before the fuel and electricity hike in June and July respectively. With global food and energy prices likely to stay elevated in the near term, we expect headline inflation to stay above the 6% mark over the next 3-4 months.

Government Securities

Trading in the MGS was rather volatile last week. After weeks of sell-offs, the market recovered at the earlier part of the week as rates tumbled 7-9 bps across the benchmark curves. However, the recovery was short-lived as rates retested new highs on the back of the much higher than expected May CPI released on Wednesday. Selling pressure was imminent for the rest of the week amidst thin volume. The average daily trading volume fell to RM800 million compared to RM1.3 billion recorded last week. The 3-year MN09/11 saw some technical buying activities at the start of the week. The stock was bought to the low of 3.95% before closing 1bp higher to 4.06%. The 5-year MJ07/13 was the most active stock last week as players continued to run more short position on the back of the bearish market outlook. The stock was sold to the high of 4.21% before late short covering activities saw the closing yield retraced 4bps lower to 4.11%. Volumes were thin in the 10-year MS02/18 and 20-year MX05/27 that saw both stocks closed 10bps and 5bps higher to 4.60% and 5.05% respectively.

In terms of sovereign spreads, the 3/5s narrowed by 5bps to 5bps. The 5/10s narrowed by 14bps to 49bps while the 10/20s narrowed by 5bps to 45bps.

The Week Ahead

Focus this week will be on the announcement of the Government Investment Issue (GII) as well as the outcome of the MPC meeting. Although the Central Bank seemed to play down any rate hike, we foresee the selling pressure to continue and sentiment will remain bearish in line with higher regional rates.

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Stock Market Tips - KUB and MBSB

Technorati Tags : stock market tips, KUB, MBSB

It has been a while since i wrote about hot tips from the stock market. Why? Coz they aren't simply any! Anyway, I'm hearing some hot rumors that something big is gonna happen to KUB and MBSB. Big in the context that these 2 companies will be subject to private takeover somewhere in July 2008 which consequently would result in a General Offer (GO) to other shareholders. Details as follows:

1. KUB

Current price: RM0.40
GO price: RM1.00
Exp. holding period: 1-2 months
Stop loss level: RM0.35

2. MBSB

Current price: RM1.32
GO price: RM2.10
Exp. holding period: 1-2 months
Stop loss level: RM1.25

Good luck guys.

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When Growth and Inflation Collides

Technorati Tags : Malaysia bond market, inflation and growth

The focus last week was on the Monetary Policy Committee (MPC) meeting held on Monday. Although BNM decided to leave the OPR unchanged at 3.50% for the 17^th consecutive meeting, the accompanying Monetary Policy Statement (MPS) was hawkish towards the upside risk to local inflation. For the first time, the central bank indicated that it would undertake the appropriate monetary measures should the balance of risks shift towards inflation. The change in the MPS language sparked the sell down in bonds throughout the week.

Out in the news, Q1 GDP grew by 7.1%, surpassing consensus estimate of 6.5% due to the strong domestic consumption and exports. The statement by the Second Finance Minister that the government is confident of achieving its target growth of 5-6% in 2008 without special stimulus measure added more selling pressure to the bond market as players started to toy with the idea of a rate hike given the higher risk to inflation and resilient growth outlook. The risk would be greater if inflation were to persistently breach the 3% mark, and especially if fuel subsidies were rolled back sharply, which could bring full year inflation closer to the 4% mark.

Government Securities

The hawkish MPS and better than expected Q1 GDP were the main catalysts to higher yields across the MGS curves last week. Selling pressure was imminent throughout the week as sentiment tilted towards the upside risk to inflation from the previous balanced inflation and growth outlook. The average daily trading volume increased to RM1.1 billion from RM727 million recorded last week. The highlight of the week was on the re-opening of the current 5-year benchmark MJ07/13 amounting to RM3.5bn. The When Issued was traded between the range of 3.85%-3.67%. The stock was auctioned at the high and low of 3.85% and 3.78% respectively with the average seen at 3.802%. Demand was poor from real money investors, judging from the low bid to cover ratio of only 1.45 times. Post auction, the stock closed at 3.85%, 5bps higher than last week’s level. The 3-year MJ09/11 received little attention last week and closed 9bps higher to 3.62%. On the other hand, the 10-year MS02/18 was actively traded in a volatile week. The stock was sold to a high of 4.08% before easing at 4.00%, 5bps higher than last week’s closing. The 20-year MX05/27 rose 9bps to close at 4.36%.

In terms of sovereign spreads, the 3/5s widened by 5bps to 20bps. The 5/10s narrowed by 9bps to 18bps while the 10/20s inched higher by 4bps to 36bps.

The Week Ahead

We foresee the selling pressure to continue and sentiment will remain bearish in line with higher regional rates. Speculation on the timing of fuel subsidy reduction as well as the uncertain political drama will add further twist to the week ahead.

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