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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