Bond Market Weekly Commentary - 25 July 2008

Technorati Tags : Malaysia bond market, CPI and MPC

Sentiment in the bond market was mainly driven by market expectation of CPI and MPC rate decision. The week started on a weaker note as players stayed sidelined ahead of the Jun CPI data. Bonds were well offered and traded 10-20bps higher as speculation on higher than expected CPI intensified. On Wednesday, Malaysia CPI hit its 27-year high at 7.7% in June, far exceeding market expectation of 6.8%. This largely reflected the fuel price hikes in early June, but there were also signs of inflation pressures spreading to other categories of the CPI basket. Despite the much higher than expected CPI, the market rallied the next day on the back of lower regional rates. As market turned its attention to the MPC, bonds recovered further grounds as players started to discount any possibility of a rate hike, given some dovish remark on inflation outlook made by the Second Finance Minister.

On Friday, the MPC decided to maintain the OPR at 3.50% despite the recent spike in CPI. In the accompanying MPS, BNM also raised its full-year forecast for average inflation to 5.5-6.0 percent from 4.2 percent previously.

Government Securities

The MGS market was lightly traded ahead of the release of Jun CPI and MPC rate decision. The average daily turnover remained relatively unchanged at RM754 million. The benchmark curves were much higher during the first part of the week before some aggressive buying took place on Thursday. The 3-year MN09/11 was traded from a high of 4.07% to a low of 3.73% before closing 1bp higher to 3.83%. Liquidity in the 5-year MJ07/13 remained lackluster with the stock traded in a range of 4.08% - 3.92% and closed at 4.05%, 8bps higher than last week’s level. The 10-year MS02/18 continued to dominate the market share and saw some furious price action for the week. The stock was given to a high of 5.02% pre CPI release but was aggressively bought back to the low of 4.73% on Thursday before ending the week 3bps higher to 4.82%. No trade was reported for the 20-year MX05/27. The bills market closed relatively unchanged with the 1-3 month bills traded in a range of 3.34% - 3.26%.

In terms of sovereign spreads, the 3/5s widened by 7bps to 22bps and the 5/10s narrowed by 5bps to 77bps.

The Week Ahead

Given the MPC decision to maintain the OPR at 3.50% despite the recent spike in CPI, we expect USD/MYR to trade higher. This could lead to foreign investors liquidating their bond positions and would negatively impact the bond market. However, some bargain hunting by the local players and real money investors could provide the support to market

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Bond Market Weekly Commentary - 18 July 2008

Technorati Tags : Malaysia bond market, inflation and growth

After weeks of sell-offs, the bond market finally recovered and closed stronger for the week. The focus for the week was on the 10-year MGS auction. The auction garnered an unimpressive bid to cover ratio of only 1.6 times, signifying investors’ lack of appetite in this bearish environment. However, buying interest reemerged on Tuesday due to the downward correction in IRS as well as the rally in US Treasuries. The buying spree continued for the rest of the week as offshore investors were seen flooding the market with sizeable buying orders. Short-term bills were traded slightly higher in tandem with weaker MYR.

Government Securities

The MGS market registered an improved average daily turnover for the week amounting to RM737 million compared to RM370 million recorded last week. The highlight of the week was on the reopening of 10-year MGS. The When Issued for the stock was sold to a high of 5.06% as looming concerns on inflation affected market sentiment. The auction saw an unimpressive bid to cover ratio of only 1.6 times in a long-tailed range of 4.97%-5.10%, with the average at 5.045%. However, significant downward move in IRS sparked some buying interest on the stock. The stock was aggressively bought throughout the week and closed 17bps lower to 4.79%. The buying frenzy spilled over to other benchmark curves as well. The3-year MN09/11 received some good offshore buying orders and was traded to a low of 3.73% before some profit taking took place on Friday where it closed at 3.82%, 23bps lower than last week’s level. The 5-year MJ07/13 also closed lower by 19bps to 3.97% in light trade. No trade was reported for the 20-year MX05/27. The bills market closed softer in tandem with weaker MYR. The 1-3 month bills closed higher at 3.31% and 3.32% respectively.

In terms of sovereign spreads, the 3/5s widened by 4bps to 11bps and the 5/10s added 2bps to 82bps while the 10/20s widened by 1bp to 22bps.

The Week Ahead

We expect the market to be range traded ahead of the Jun CPI data and MPC.

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Bond Market Weekly Commentary - 11 July 2008

Technorati Tags : Malaysia bond market, inflation and growth

Trading in the bond market was rather choppy last week. The market started on firm grounds where customer-buying flows were seen for the benchmark stocks. The buying interest seemed to dwindle on Tuesday upon the announcement of the reopening of the 10-year MGS. Knee jerk selling reaction affected overall sentiment and the market was back in selling mood. Softer swap rates during the middle of the week brought investors back into the buying fray especially at the short end of the curve. However, Governor Zeti’s hawkish remark on the inflation outlook sparked some sell off at the longer end of the curve. Yield curve continue to steepen during the latter part of the week, as investors remain cautious on inflation. Short-term bills market continued to be very well supported in tandem with stronger MYR.

Out in the news, industrial production gained 2.5% y-o-y in May, moderating from 4.8% in April and lower than market expectations of 5.7%. In the April-May period, IP averaged 3.7% vs. 5.8% in 1Q08, suggesting a modest slowdown in GDP growth in 2Q08.

Government Securities

The MGS market was thinly traded last week as players stayed sidelined ahead of the 10-year MGS re-opening. Average daily turnover dropped to RM370 million compared to RM920 million recorded last week. Trading was mostly concentrated at the shorter end of the curve, led by the 3-year benchmark MN09/11. The stock was traded from the high of 4.17% to the low of 4.02%, before closing 14bps lower to 4.05%. Rising concern on inflation and higher IRS saw market players turned to better sellers at the longer end of the curve. The 5-year MJ07/13 closed 1bp higher to 4.16% while the 10-year MS02/18 added 9bps to close at 4.96%. Some minimal trades were reported for the 20-year MX05/27, which ended the week at 5.18%, 10bps higher than last week’s closing. In tandem with stronger MYR, the bills market continued its strong buying momentum. The 1-month, 3-month and 6-month bills ended the week lower at 3.26%, 3.29% and 3.28% respectively.

In terms of sovereign spreads, the 3/5s widened by 15bps to 11bps. The 5/10s added 8bps to 80bps while the 10/20s widened by 1bp to 22bps.

The Week Ahead

Trading sentiment will be largely influenced by the outcome on the upcoming 10-year MGS auction. We expect the market to continued to be range traded ahead of the Jun CPI data and MPC next week.

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Bond Market Weekly Commentary - 04 July 2008

Technorati Tags : Malaysia bond market, inflation and growth

The bond market closed mixed for the week in thin volume. The week started with continued sell down in bonds as players reacted negatively to the latest political saga. The market recovered during the middle of the week as aggressive short covering activities pulled yields lower across the benchmark stocks. However, lack of customer flows made the recovery unsustainable and bonds were under further selling pressure once the short-squeeze of securities have been filled. The week ended with little activities as players chose to remain sidelined ahead of the 10-year auction. Despite the sell down in bonds, the short term bills market was very well supported as investors switched to shorter duration asset in this uncertain environment.

Out in the news, May export growth came in at 22.9%, almost double the market expectations of 12.5%, and the fastest since April 2004. The strong performance in May exports was largely due to the surge in commodity prices, especially petroleum and palm oil. Despite some slowdown in domestic demand, the reportedly impressive export growth figures seem to suggest that the balance of risk is shifting towards inflation for now.

Government Securities

The MGS market remained volatile last week with the bearish mood still clouding overall sentiment. The aggressive short covering in the 3-year and 5-year benchmarks was seen as the savior that capped the sell down in bonds last week. The 3-year MN09/11 was sold to the high of 4.26% before the short-squeeze pulled the yield to a low of 3.96 on Wednesday. The sell down continued during the latter part of the week and the stock closed 9bps higher to 4.19%. Likewise, the similar short covering in the 5-year MJ07/13 saw the stock bought to a low of 4.03% before closing 7bps lower to 4.15%. Trading remained light at the longer end of the curve. The 10-year MS02/18 closed 2bps higher to 4.87% whilst the 20-year MX05/27 ended the week at 5.8%, 2bps lower than last week’s closing. In the bills market, strong demand by both local and offshore players saw the bills with maturities less than 6-month ended the week lower at 3.30%.

In terms of sovereign spreads, the 3/5s narrowed by 16bps to 4bps. The 5/10s added 9bps to 72bps while the 10/20s narrowed by 4bps to 21bps.

The Week Ahead

Focus this week will be on the announcement of the 10-year MGS auction. We expect sentiment to remain bearish against the backdrop of such uncertainty.

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