Bond Market Weekly Commentary - 22 Aug 2008
Trading in the bond market remained lackluster as players stayed sidelined ahead of the July CPI announcement on Friday. Yields were pretty much unchanged from last week’s level. Most players turned their attention to the bills market as strong offshore buying were seen despite the continued weakness in MYR. Out in the news, July CPI jumped to 8.50%, far exceeding market expectation of 7.80% as a result of second round effect from the recent fuel and electricity price hike. The announcement came at the same time as the news that the petrol price will be reduced to RM2.55 per liter from RM2.70 effective 23 August.
The MGS market was fairly quiet for the week as most dealers were away for the school holidays. The average daily turnover stood at a mere RM538 million. MGS was traded range-bound for the whole week players stayed sidelined ahead of the release of July CPI. The market closed on a softer note as players anticipated a much higher CPI print on Friday. The 3-year MN09/11 closed unchanged at 3.89% while the 5-year MJ07/13 fell 11bps lower to close at 4.00%. The 10-year MS02/18 continued to be in focus and was traded to the low of 4.76% before closing 1bp higher to 4.81%. The 20-year MX05/27 saw some decent amount of trade transacted and closed lower at 5.08%. Contrary to the MGS, the bills market was actively traded. Offshore players were seen aggressively buying the 3 and 6 months bills despite MYR scaled another high of 3.3440 as at the end of the week. The 3-6 month bills closed 5bps lower to 3.45% in heavy trade.
In terms of sovereign spreads, the 3/5s narrowed by 11bps to 11bps whilst the 5/10s widened by 12bps to 81bps.
The Week Ahead
The focus this week will be on the MPC rate decision on Monday. Some knee-jerk selling reaction could be seen as a result of the much higher than anticipated July CPI. However, the reduction in fuel price could reignite buying interest particularly from the underinvested funds and may cushion any sell-off effect.
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