Bond Market Weekly Commentary - 5 Dec 2008

Technorati Tags : Malaysia bond market, regional rate cuts, 10 year MGS auction

The local bond market continued to rally in tandem with heightened expectation of further rate cuts. Yields tumbled in line with the move in US Treasuries at the start of the week. The Government’s decision to cut petrol prices by 10 cents on Tuesday saw further buying in bonds as inflation concerns continued to be alleviated. On Wednesday, the market was buoyed by the larger than expected policy rate cut by the Bank of Thailand and this was followed by the weaker October export data released on Thursday. The market ended on a positive note for the week as players started to price in more rate cuts by the Central Banks during the first quarter of next year.

Out in the news, October exports fell for the first time in 15 months, contracting 2.6% from a year ago, from a 15% expansion in September, sharply disappointing consensus expectations for a 6.6% increase. The surprise contraction in October exports points to a weak start to the fourth quarter and increases the likelihood for further rate cuts in Q1 next year.

Government Securities

The highlight of the week was on the reopening of the new 10-year benchmark MS07/19. The When Issued for the stock was transacted in a range of 3.63 to 3.49%. The RM2.5 billion issue was oversubscribed by 2.19 times and issued at an average rate of 3.481% with the high and low seen at 3.50% and 3.45% respectively. The stock ended the week 18bps lower to 3.42%.

Trading volume in the government securities remained relatively unchanged at RM1.56 billion, with most trades went to short term off benchmark papers as investors sought some yield pick up in those stocks. The rest of the benchmarks rallied for the second consecutive week, albeit in smaller magnitude. The 3-year MN09/11 fell 7bps lower to 3.16% whilst the 5-year MN04/14 dropped 9bps lower to close at 3.28%. The search for duration saw the 20-year MX09/28 closed 22bps lower to 3.89%.

In terms of sovereign spread, the 3/5s and 5/10s spreads narrowed by 2bps and 16bps to 12bps and 14bps respectively while the 10/20s widened by 3bps to 47bps.

The Week Ahead

The bullish sentiment in the market is expected to continue this week. However, market players will be a bit cautious ahead of the release of the MGS auction calendar expected to be out by next week.

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Bond Market Weekly Commentary - 14 Nov 2008

Technorati Tags : Malaysia bond market, industrial production, 5 year MGS auction

Following last week’s rally, the local bond market continued its sterling performance to close stronger for the week. Gains in US Treasuries and weaker than expected September industrial production data were among the catalysts that led to a much flatter curve for the week. Sentiment was also driven by lower interest rate expectation as speculation of a rate cut in the upcoming MPC intensified.

Out in the news, Industrial Production fell 1.7% in September from a year ago, the first decline in 18 months, and a sharp drop from the 1.2% expansion in August. This was much worse than market expectations for a 0.6% increase. The surprise fall in September IP, especially electronics, suggest a sharp slowdown in 3Q08 GDP growth, likely close to 4-4.5% range or even below, reinforcing the notion that the global recession has finally caught up with Malaysia and increasing the likelihood of a rate cut in the upcoming MPC.

Government Securities

The focus in the MGS market was on the auction of the 5.4 year MN04/14. Prior to the auction, the When Issued was traded in a range of 3.90%-3.76%. The RM3 billion auction received a bid to cover ratio of 1.8 times and was issued at an average rate of 3.751% with the high and low seen at 3.78% and 3.697% respectively. Post auction, the stock was traded lower and close at 3.72%, 16bps lower from last week’s level. In tandem with the good response in the auction, the rest of the curves were traded lower for the week albeit in thin volume. Average daily turnover fell to RM1.3 billion compared to RM1.9 billion reported last week, with interest skewed towards the shorter end of the curve. The 3-year MN09/11 fell 11bps lower to 3.58% while the 10-year MS02/18 closed 3bps lower to 4.10%. The 20-year MS09/28 was lightly traded and closed 5bps lower to 4.58%. In the bills market, the 1-2 month bills fell to a 3-month low of 3.30% on the back of aggressive buying by local interbank players.

In terms of sovereign spreads, the 3/5s narrowed by 5bps to 14bps while the 5/10s widened by 13bps to 38bps. The 10/20s fell by 2bps to 48bps.

The Week Ahead

We expect the market to be traded range bound ahead of the MPC meeting. Focus will also be on the October CPI due to be released on Friday.

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