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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