Monday, September 29, 2008

Bond Market Weekly Commentary - 26 Sep 2008

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The bond market was well supported despite the sell-off in US Treasuries at the start of the week. The announcement of the 3-year MGS reopening amounting to RM3 billion was well received by the market and buying interest was apparent thereon. Although players traded cautiously ahead of the August CPI on Wednesday, the market remained resilient and ended the week on a positive note. Out in the news, August CPI remained unchanged at 8.50%, slightly above market consensus of 8.40%. Despite the high CPI reading, inflation is expected to moderate in the coming months in view of falling global food and fuel prices. The Government also announced another RM0.10 cut in petrol prices to RM2.45 per liter effective Thursday.

Government Securities

The government securities market was traded range bound at the start of the week before buying interest flocked the market post announcement of the 3-year MGS. The average daily turnover fell slightly to RM1.37 billion compared to RM1.6 billion registered last week. Focus for the week was on the reopening the 3-year MGS MN09/11. The When Issued for the RM3billion issue was traded in a range of 3.96% - 4.05%. The auction fetched a decent bid to cover ratio of 2.2 times and was issued at an average rate of 3.983%, with the high and low seen at 4.002% and 3.95% respectively. Trading interest was also apparent at the short end of the curve with the off-benchmark stocks maturing in 2009 & 2010 were well demanded by both local and offshore investors. Week on week saw the 3-year MN09/11 closed 6bps lower to 3.97% whilst the 5-year MJ07/13 fell 2bps lower to close at 4.08%. At the longer end of the curve, the 10-year MS02/18 continued its impressive run by closing 6bps lower to 4.65% while the 20-year MX09/28 shed 5bps lower to 5.15%. Short term bills closed below 3.50% as a result of a strong demand from corporate investors.

In terms of sovereign spreads, the 3/5s widened by 4bps to 11bps. The 5/10s narrowed by 4bps to 57bps while the 10/20s inched up by 1bp to 50bps.

The Week Ahead

The holiday shortened week shall see a range bound trading market with little volume. As most traders will be away for the festive holidays, we do not see any major changes in the market next week.

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