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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