Bond Market Weekly Commentary - 22 Aug 2008

Technorati Tags : Malaysia bond market, fuel prices

Trading in the bond market remained lackluster as players stayed sidelined ahead of the July CPI announcement on Friday. Yields were pretty much unchanged from last week’s level. Most players turned their attention to the bills market as strong offshore buying were seen despite the continued weakness in MYR. Out in the news, July CPI jumped to 8.50%, far exceeding market expectation of 7.80% as a result of second round effect from the recent fuel and electricity price hike. The announcement came at the same time as the news that the petrol price will be reduced to RM2.55 per liter from RM2.70 effective 23 August.

Government Securities

The MGS market was fairly quiet for the week as most dealers were away for the school holidays. The average daily turnover stood at a mere RM538 million. MGS was traded range-bound for the whole week players stayed sidelined ahead of the release of July CPI. The market closed on a softer note as players anticipated a much higher CPI print on Friday. The 3-year MN09/11 closed unchanged at 3.89% while the 5-year MJ07/13 fell 11bps lower to close at 4.00%. The 10-year MS02/18 continued to be in focus and was traded to the low of 4.76% before closing 1bp higher to 4.81%. The 20-year MX05/27 saw some decent amount of trade transacted and closed lower at 5.08%. Contrary to the MGS, the bills market was actively traded. Offshore players were seen aggressively buying the 3 and 6 months bills despite MYR scaled another high of 3.3440 as at the end of the week. The 3-6 month bills closed 5bps lower to 3.45% in heavy trade.

In terms of sovereign spreads, the 3/5s narrowed by 11bps to 11bps whilst the 5/10s widened by 12bps to 81bps.

The Week Ahead

The focus this week will be on the MPC rate decision on Monday. Some knee-jerk selling reaction could be seen as a result of the much higher than anticipated July CPI. However, the reduction in fuel price could reignite buying interest particularly from the underinvested funds and may cushion any sell-off effect.

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Bond Market Weekly Commentary - 8 Aug 2008

Technorati Tags : Malaysia bond market, USD/MYR

The bond market was fairly quite for most part of the week and was traded range bound in the absence of any fresh leads. However, sentiment turned bearish during the latter part of the week as players took cue from the weaker MYR and higher swap rates. Offshore investors were seen liquidating their positions in short-term bills. The sell down in the bills spilled over to the bonds as well. The announcement of the RM3.5 billion 5-year new GII issuance was also seen as the contributing factor that led to higher yields for the week.

Out in the news, export growth moderated to 18.4% in June, from 22.9% in May, but in line with market consensus. Likewise, import growth accelerated to 12.1% from 9.4% in May, above market expectations for a 10.3% increase, perhaps hinting at some resilience in domestic demand. Given the strength of exports and weaker imports, the monthly trade balance narrowed to RM12.97bn from a record RM15.6bn in May. Despite the narrowing, this was still the second-highest monthly trade surplus on record.

Government Securities

Trading in the MGS market was rather lackluster with the average daily turnover fell to RM581 million compared to RM889 million registered last week. MGS was traded sideways for most part of the week as players stayed sidelined ahead of the FOMC rate decision on Wednesday. The announcement of the new 5-year GII on Thursday pushed yields higher across the benchmark curves. The When Issued for the stock was traded in a range of 4.29% to 4.24% before settling at 4.27%. The fact that MYR weakened considerably and closed higher at 3.3025 led a massive exodus of offshore investors, particularly in the short-term bills market. The 1-3 month bills closed 23bps higher to 3.50% in heavy trade. Other benchmark curves were also traded higher in tandem with the bills. The 3-year MN09/11 closed 12bps higher to 3.95% whilst the 5-year MJ07/13 added 17bps to close at 4.11%. Trading in the 10-year MS02/18 saw a tug of war between the offshore sellers and local buyers. Strong local support was seen at 4.75% level for most part of the week before late selling pressure on Friday pushed the closing yield higher by 14bps to 4.85%. No trade was reported for the 20-year MX05/27.

In terms of sovereign spreads, the 3/5s widened by 5bps to 16bps whilst the 5/10s narrowed by 3bps to 74bps.

The Week Ahead

The focus this week will be on the 5-year new GII issuance. Sentiment will also be closely aligned to the movement in USD/MYR. We expect MYR to weaken further and the bearish sentiment on bonds to persist for the rest of the week.

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Bond Market Weekly Commentary - 1 Aug 2008

Technorati Tags : Malaysia bond market, CPI and crude oil

The bond market reacted positively to BNM’s decision to maintain the OPR at 3.50%. Aggressive buying at the longer end of the curve by local funds was seen at the start of the week. Some profit taking activities and technical correction took place during the middle of the week, pushing back the yields to pre MPC levels. However, buying sentiment reemerged during the later part of the week, aided by the fall in swap rates as well as the flows from the offshore funds. News that the Government may lower fuel prices in view of falling world crude oil prices saw the bonds ended the week on a bullish note.

Government Securities

The MGS market received a boost from BNM following its decision to maintain the OPR at 3.50%. The knee-jerk buying post MPC meeting saw the average daily turnover increased to RM890 million compared to RM754 million registered last week. Profit taking activities during the middle of the week failed to dampen the buying sentiment. Offshore buying flows re-entered at the later part of the week and this ensured a strong finish to the MGS. The 3-year MN09/11 was bought to a low of 3.73% before closing unchanged at 3.83%. Short covering activities in the 5-year MJ07/13 saw the turnover for the stock quadrupled with the last traded yield at 3.94%, 11bps lower than last week’s level. The 10-year MS02/18 remained the investors’ favorite and was the biggest beneficiary from the week’s rally. Huge buying flows saw the stock traded to a low of 4.68% before closing 11bps lower to 4.71%. At the longest end of the curve, the 20-year MX05/27 attracted little interest and saw some odd lot traded at 5.06%. The bills market received some huge corporate buying flows and touched a 3-month low of 3.26% during the middle of the week. The 1-3 month bills closed lower in a range of 3.30% - 3.27%.

In terms of sovereign spreads, the 3/5s narrowed by 11bps to 11bps whilst the 5/10s remained unchanged at 77bps.

The Week Ahead

The focus this week will be on the trade data for the month of Jun. We expect the market to remain well-bid and the buying momentum to continue this week.

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