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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