Treasury pulse

Published: Saturday August 24, 2013 MYT 12:00:00 AM
Updated: Saturday August 24, 2013 MYT 9:19:53 AM
Treasury pulse

Global forex market

THE minutes to the July Federal Open Market Committee (FOMC) meeting failed to provide much guidance on the ongoing debate surrounding the timing, composition and pace of tapering, which most economists still expect it to start in September but it is still open to delaying the decision until subsequent meetings this year if incoming data disappointing.

Existing home sales rose sharply in July of 17%, putting a dose of acceleration into the upward trend they’ve run for two years. Time will tell whether higher mortgage rates – 30-year rates which have risen by 115 basis points to 4.56% will get people off the couch or put them there. The event proved to be bullish for the US dollar and bearish for US equities. Dow Jones Index closed below 15,000 for the first time since July 3.

While the US dollar (USD)/yen remained relatively sticky, oscillated in a range of 97.27–98.20, the euro held close to just below six-month highs in the early part of the week before heading down to 1.3350 as the currency was seen as a chief benefactor in the massive unwinding of carry trade bets on emerging market currencies.

The benchmark equity indexes were a sea of red with the Euro Stoxx Index posted a 1.3% slump following the two-month long 14.5% rally while sovereign yields offered up a material drop in periphery bonds with the Greek 10-year yield rising 25 basis points and Spain’s advancing 5 basis points.

Asean currencies suffered most losses with the Indonesia rupiah’s 4.3% being the top loser on the back of plunging Jakarta composite index to 4,313.52 on Aug 19, while government bonds dropped after the current-account deficit widened to a record in the second quarter (Q2), followed by the baht of 1.97% as the Thailand’s economy slowed further to 2.8% year-on-year (y-o-y) in Q2, from +5.3% in Q1 and compared with a record high of +19.1% in the Q4 and the peso of 0.89%. Singaporean dollar cleared the 1.28 résistance level and opened up mid-July high 1.286 level. On the macro front, China HSBC Flash PMI increased by 2.5 percentage points to 50.1 in August after staying in the contractionary zone for three consecutive months since May. New orders index increased most among the key sub-indices, by 3.9pp to 50.5.

Under the strong USD environment, the ringgit failed to benefit much from the better than expected Malaysia’s Q2 real GDP as the currency broke 3.3000 from last week’s closing 3.2770. Malaysia also reported narrowing current account surplus to RM2.6bil in Q2, the smallest since Q4 of 1997. This compared with a surplus of RM8.7bil Q1. Q2 current account surplus should provide some relief to the market that was expecting RM900mil, while some observers even mentioned a deficit figure.

UST market

US Treasuries (UST) sold off sharply after the release of the July 30-31 FOMC minutes which were interpreted by markets as suggesting tapering of its bond-buying programme will be imminent. At the point of writing, the two-, five- and 10-year yields were 4-16 bps higher at 0.39%, 1.68% and 2.88% respectively.

Malaysian bond market

During the week, a slew of local economic data were released. CPI for the month of July was at 2%, compared with 1.8% in June. Consumer price gains were led by increases in food and housing costs. On another note, Malaysia cut its forecast for growth at 4.3% to bolster confidence as the ringgit (MYR) weakens and current account surplus fell to RM2.6bil last quarter as exports slumped. As at Aug 15, Bank Negara’s reserves was at RM438.3bil (US$137.9bil), sufficient to finance 9.6 months of retained imports and is 3.8 times the short-term external debt.

Local govvies continued to slip due to further weakening ringgit and UST. Market sentiments broadly influenced by the FOMC minutes, with 10-year Treasury yield surged to its two-year high after the meeting as majority of Fed makers were comfortable with tapering plan. As of Thursday’s close, benchmarks Malaysian Government Securities yields were higher by 7-16 bps from prior week with the exception of 20-year benchmark which saw yield eased 10 bps. The 15-year benchmark was untraded during the week.
Yields on three-, five-, seven-, 10- and 20-year were last dealt at a respective 3.35%, 3.5%, 3.86%, 3.95% and 4.2%. RM5.4bil worth of trades changing hands with a daily average trading volume of RM1.3bil compared RM1.2bil previously.

On the local PDS market, most PDS yields continue to trend higher compared with the previous trade levels. Total trading volume amounted to RM1.3bil versus RM1.8bil previously. About 52% of the trading volume was contributed by the GG/AAA segment, 47% by the AA segment and the balance by the A segment. Daily average trade volume was lower at RM329mil versus RM368mil a week earlier.
In the GG/AAA segment, active trading was seen for Gulf Investment Corp G.S.C maturing 2016-2022 which garnered a collective trading volume of RM183mil with yield closed 1-31 bps higher. Other notable trade includes PLUS bonds maturing 2017-2030 with collective trading volume of RM121mil.

In the AA space, trading activities continued to be skewed towards power sector name, including Tanjung Bin Energy maturing 2019-2031 which saw yields increased 6-13 bps higher. Other notable trade includes Sapurakencana ‘08/16 was traded unchanged at 4.14% with RM83mil changing hands. Notable trades among the financial institution names include Public Bank maturing 2014-2017 attracted collective trading volume of RM80mil transacted.

MYR IRS market

MYR IRS rates continue to rise as market adjusting expectation for US QE tapering and regional fund outflow. The IRS curve ended the week by 5-10 bps higher

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