Snapshot Summary…

Global Rates: Sentiments on global bond markets were mainly mixed

MYR Bonds: There was late profit-taking activity slanted on the front of the curve in the govvies space

Global FX: Dollar posts third straight week of gains, and mixed performances were seen on major and Asian currencies

USD/MYR: The ringgit firmed at below 4.73-level on the week

Fixed Income

Global Bonds: In global markets last week, the trend was for the continued strong US dollar and mainly sustained performance in global government and corporate bonds. Sentiment continued to be driven by anticipation that central banks will ease rates this year amid moderating inflation. This was despite firm data such as US GDP at a 3.4% annualised growth rate in 4Q2023, surpassing estimates of 3.2%. However, the Fed's preferred inflation gauge, the core PCE price index, increased by 0.3% m/m in February, decelerating from January's 0.4% m/m growth. On a year-over- year basis, the core index, which omits food and energy costs, climbed at a slower pace of 2.8% y/y.

Malaysian Government Bonds: Mirroring the UST market, there was late profit-taking activity slanted on the front of the curve. However, longer tenors were supported despite inflation at +1.8% y/y in February 2024, following three months of rising at a rate of 1.5%. Notable increases in the key categories of Housing, Water, Electricity, Gas, & Other Fuels primarily drove this rise. Core inflation was also at +1.8% y/y, similar to 1.8% y/y in January. Meanwhile, the MYR5.0 billion reopening of the 5Y MGS 08/29 (no PP) was relatively weak at 1.80x bid cover and a tail of about 2 bps. The average yield was 3.681%, but it was traded lower to 3.665% post-auction on the suspected covering of short positions.

Malaysian Government Bonds View: Post profit taking on the short end, we note 3Y MGS end last week at 3.49%, 5Y at 3.59% and 7Y MGS at 3.77%, which we provided a negative butterfly of a small 8 bps (Exhibit 1); we foresee players picking up the 3Y MGS over the 5Y MGS at present levels.

Malaysian Corporate Bonds: Overall, the corporate bond market was mixed last week, reflecting the lack of guidance from government trading. We noted indicative yields on shorter-dated PDS slightly declined, but bellies and longer tenors generally rose. The net selling occurred across the AAA down to the single-A rating segments, reflecting the lack of firm sentiment in the market during the week.

Malaysian Corporate Bonds View: Last week's yield rise on bellies and longer tenors could sustain this coming week if investors opt to take profit further. However, we also note that select AAA tranches have lagged recent rallies; these include AAA-rated PLUS near 5Y maturities (Exhibit 2).

Forex

DXY Index: The dollar remained supported last week, gyrating above the 104 level and briefly touched 104.7 on Thursday during the London session. While the longer-term expectations for a US Fed rate cut continue to be the main narrative among market players, stronger-than-expected US economic data released during the week, which suggests resiliency, put doubt on the expectations. We noticed that three-month DXY risk reversals (a barometer of market positioning that compares the appetite to buy a currency versus to sell) were elevated at around 24.4 basis points (bps) in favour of calls over puts options, compared with 0.05 bps early this month. In his speech at a conference at the San Francisco Fed, Fed Chair Jerome Powell reiterated that the Fed expects to cut interest rates this year but is not ready to do so unless it sees “more good inflation readings”. This week, we will face the volatility brought about by US labour market data, including the non- farm payroll and hourly earnings, alongside PMI data. We posit that the DXY could trend further upward towards the 105 resistance level this week if data show another series of upside surprises.

Europe: Mixed performances were seen on the EUR and GBP as mixed signals were seen from central bank officials. BoE’s Katherine Mann said financial markets are currently pricing in too many rate cuts, and it is doubtful that the central bank would move first before the US Fed. On the other hand, ECB Governing Council Fabio Panetta said that consumer inflation in the region has eased quickly, and the timing to cut interest rates is approaching.

Asia: Asian currencies were mixed, and the DXY held above 104. The Chinese yuan firmed, slowly grinding towards the 7.21 level as it received continuous support from PBoC through stronger daily yuan fixing. Over the weekend, China’s official Manufacturing PMI showed growth in the sector for the first time in six months, which may pave the way for the currency this week. In Japan, the yen managed to hold its ground. It was stable above the key 151 level as market players were cautious against BoJ intervening to support the JPY after it slid to its weakest level in 34 years on Wednesday. In the meantime, the commodity-linked currencies AUD and NZD experienced different performances during the week; the former rose by a slight 0.1% while the latter was down 0.2%. Australia’s monthly CPI indicator showed that February’s inflation rate was stable at 3.4% y/y, the same as the prior month’s reading but still above RBA’s target. Closer to home, the SGD depreciated. On the data front, Singapore’s inflation rate for February 2024 rebounded to 3.6% y/y from 3.1% y/y in the prior month and beat the market forecast of 3.4% y/y.

Malaysia: With the strength seen in the DXY last week, the ringgit remained pressured, though it posted weekly gains of 0.2% w/w. The USD/MYR pair was seen closing at 4.725 on Friday, up from lows for the week around 4.716. Data-wise, Malaysia's inflation registered at 1.8% y/y in February 2024, following three months of rising at a rate of 1.5%. Notable increases in the key categories of Housing, Water, Electricity, Gas, & Other Fuels primarily drove this rise. However, core inflation, which excludes the volatile prices of fresh food and government-administered prices, was also at 1.8% y/y, similar to the pace of 1.8% y/y in January.

Source: AmInvest Research - 2 Apr 2024