Bond Market Weekly Commentary - 24 October 2008
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.
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.
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.Share this article :