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Monday, October 27, 2008

Bond Market Weekly Commentary - 24 October 2008

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The bond market was fairly quiet at the start of the week as players stayed sideline ahead of the policy speech by the Finance Minister on measures to address the economic slowdown. Apart from some initiative to boost foreign investment and the local stock market, there were no other comprehensive measures announced, hence the bond market remained lackluster. Buying interest picked up during the middle of the week in reaction to the dovish statement made by the Domestic Trade and Consumer Affairs Minister on the lower inflation outlook for September. Offshore players were seen buying the short term government securities as speculation on interest rate cut intensified. Local players however, were seen reducing positions on Thursday ahead of the announcement of the auction details on the 10-year GII. Coupled with some profit taking activities at the end of the week, bonds closed slightly weaker although the downtrend in yields remained intact.


Out in the news, CPI eased to 8.2% in September, in tandem with the recent reduction in fuel prices and in line with market consensus. The much awaited rate decision in the MPC meeting saw the OPR being maintained at 3.50%. The accompanying MPS however emphasized on the slower growth outlook and continued moderation in inflation, thus signaling a rate cut may come sooner than expected.

Government Securities


The MGS market closed weaker for the week as technical correction took place after 3 weeks of consecutive gains. Focus of the week was on the announcement of the 10-year GII. The RM3.5 billion issue was within market expectation. Nevertheless, the longer duration of the bond caused some selling pressure on the other part of the curve and saw the MGS market ended softer for the week. Average daily turnover increased slightly to RM2.1 billion compared to RM2 billion reported last week. The 3-year MN09/11 closed 8bps higher to 3.74% whilst the 5-year MJ07/13 added 5bps to close higher at 3.83%. Significant reduction in the trading volume for the 10-year MS02/18 saw the stock traded sideways before closing 5bps higher to 4.13%. Some odd lot of non-interbank trade was reportedly done for the 20-year MS09/28 at 4.65%, 5bps lower than last week’s level.

In terms of sovereign spreads, the 3/5s narrowed by 3bps to 9bps while the 5/10s remained unchanged at 30bps. The 10/20s gapped down by 10bps to 52bps.


The Week Ahead

This week’s focus will be on the auction of the 10-year GII. In view of the dovish MPS released last Friday, we expect the auction to be well received by investors. After last week’s correction, buying interest shall revisit the market and the bullish sentiment shall remain until the next MPC in November.

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Monday, October 20, 2008

Bond Market Weekly Commentary - 17 October 2008

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The bond market started the week on a softer note with profit takers dominated the market. Bonds continued to be well offered on the back of the biggest intraday rally in the global stock market on Tuesday. Sentiment however, turned bullish after the Government announced another cut in fuel prices, a RM0.15 reduction to RM2.30 per liter on Wednesday. The midweek knee jerk buying on safe haven in reaction to the crumble of major equity indices spurred further rally in bonds. Some late offshore buying interest on Friday fueled by speculation on the imminent rate cut in the next MPC meeting ensured a strong finish to the week.

Government Securities


The MGS market continued its impressive run and closed stronger for the 3rd consecutive week as safe haven remained as the theme for the week. Although technical correction took place at the start of the week, MGS were back in demand following the midweek global stock market crash. The further reduction in fuel prices also contributed to the feel good factor that saw a strong finish to the sterling week. Average daily turnover increased slightly to RM2 billion compared to RM1.9 billion reported last week. The 3-year MN09/11 closed 10bps lower to 3.66% after being traded in a volatile range of 3.94% - 3.63%. The 5-year MJ07/13 shed 5bps to close lower to 3.78%, thanks to the short covering activities. At the longer end of the curve, the 10-year MS02/18 fell by 11bps to 4.08% while the 20-year MS09/28 ended the week as the biggest gainer in price term after closing at 4.70%, 10bps lower than last week’s level.


In terms of sovereign spreads, the 3/5s widened by 5bps to 12bps while the 5/10s narrowed by 6bps to 30bps. It is interesting to note that despite the recent flattening in benchmark curves, the 10/20s remained relatively unchanged at 62bps.


The Week Ahead

Focus will be on the MPC rate decision and September inflation data, both scheduled to be announced by midweek. The market will also be eyeing on the details of the 10-year GII issuance to be auctioned at month end.

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Monday, October 13, 2008

Bond Market Weekly Commentary - 10 October 2008

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The bond market continued to be buoyed by safe haven flows as equity market tumbled around the world. The coordinated rate cuts by global central banks on Wednesday was taken positively by the market as more countries have shifted their focus from inflation to growth and further rate cuts are expected to be exercised in the near future. Although BNM is not expected to cut OPR in the near term, lower interest rate expectation saw a much lower and flatter yield curve for the week.


Out in the news, Industrial Production growth moderated to a 12-month low of 0.9% y-o-y in August, lower than consensus estimate of a 1.9% growth. This is in line with the moderating growth seen in August exports, which slowed by more than half (+10.6%) versus July (+25.3%) and seems to confirm the early signs that the effects of the global slowdown are finally beginning to hit the local economy.

Government Securities


The bullish sentiment in the bond market continued for the week as investors turned to safe haven on the back of global financial turmoil. The midweek rate cut by the US and European central banks triggered some knee jerk buying on MGS and led to stronger closing for the week. The significant drop in crude oil was also seen as the catalyst to the rally as the market prepares for another cut in fuel prices this month. Average daily turnover increased to RM1.9 billion compared to RM900 million reported last week. The 3-year MN09/11 garnered the most market share and touched a yield low of 3.65% before closing at 3.76%, about 3bps lower from last Friday. Trading remained minimal on the 5-year MJ07/13 which closed 9bps lower to 3.83%. The 10-year MS02/18 was the biggest gainer for the week, dropping 29 lower to 4.19% while the 20-year MS09/28 shed 19bps to close lower at 4.80%.


In terms of sovereign spreads, the 3/5s narrowed by 6bps to 4bps. The 5/10s was also lower by 20bps to 36bps while the 10/20s widened by 10bps to 61bps.


The Week Ahead

We expect some correction in the bond market after the strong run for the past couple of weeks. Nevertheless, the bullish trend should remain intact given the prospect of more rate cuts by the global central banks.

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