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.

Share this article :