AmInvest Research Reports

Weekly Fixed Income & FX Research - Ended 12 Apr 2024

AmInvest
Publish date: Tue, 16 Apr 2024, 10:31 AM
AmInvest
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Snapshot Summary…

Global Rates: Treasuries fell after the strong US inflation data release, though safe-haven bids boosted bonds at the end of last week

MYR Bonds: Malaysian govvies fell to follow the weak global sentiment

Global FX: Dollar swung higher on the back of rates outlook and geopolitical risks

USD/MYR: With the strength in USD, the ringgit remained pressured

Fixed Income

Global Bonds: Treasuries rallied last Friday but still ended lower for the week, with yields coming down from their highest levels YTD. To end the week, a move into Treasuries was driven by safe-haven demand due to geopolitical concerns between Iran and Israel. At the same time, data showing China saw a drop in its foreign trade in March also aided bond demand. On the other hand, there was a surge in yields earlier in the week due mainly to the release of strong US inflation numbers. US CPI rose 0.4% m/m in March (consensus 0.3%), while core CPI, which excludes food and energy, also rose 0.4% m/m (consensus 0.3%). On a year-on-year basis, the CPI increased by 3.5%, y/y or higher, versus 3.2% in February, while core CPI was up 3.8% for the second month. In addition, the US headline PPI for March had a cooler-than-expected rate of 0.2% (consensus 0.3%) and a core PPI of 0.2% (consensus 0.3%). However, the year-on-year headline PPI quickened to 2.1% from 1.6% in February, while core PPI rose to 2.4% from 2.1%.

Malaysian Government Bonds: Modest weakening in the MGS/GII market was seen last week, while MYR IRS levels rose in tandem with bond yields. Anticipation for delayed Fed rate cuts arose post-release of firm US CPI numbers and steady NFP data the week before, affecting pricing in the onshore bond and swap markets. However, we do not anticipate a shift in BNM’s interest rate policy this year. This is despite bond yields, specifically the 3Y MGS hovering near 3.55%, at a relatively large spread of 55 bps over the OPR.

Malaysian Government Bonds View: Given the weakness in UST, while USD is a safe haven and is likely to persist this week, focus on the MGS market would be on the primary segment, namely the sale of MGS 04/39. At MYR3.0 billion public tender and MYR2.0 billion PP, BTC should be decent for the new 15Y benchmark to take over from MGS 06/38.

Malaysian Corporate Bonds: Overall, trading flows in the corporate bond space were low last week due to the midweek Eid holiday. PDS yields rose along with the rise in MGS yields, though spreads tightened due to the slightly larger MGS/GII yield climb.

Malaysian Corporate Bonds View: Some, though limited, opportunities in the GG space remain, namely on selected Prasarana tranches (Exhibit 2).

Forex

DXY Index: The dollar index surged last week, rising from the prior week’s level of around 104 to close just above the 106 handle. The first upswing of the index (from 104 to 105) midweek occurred post-release of the strong US inflation numbers. The second upswing (from 105 to 106) occurred due to USD safe-haven demand from the Iran-Israel conflict. At the same time, Fed-speak remained more on the hawkish side. Atlanta Fed President (FOMC voter) Bostic said he is not hurrying to cut rates. Another FOMC voter, New York Fed President Williams, said that despite "tremendous progress" toward lowering inflation vis-a-vis employment, there is little need to cut interest rates in the "very near term."

Europe: EUR fell versus the surging USD. Also depressing the EUR was last week’s ECB's latest stance. Last week, the ECB held its interest rate for the fifth consecutive time but signalled confidence that inflation would return to target and that it could soon ease its stance. “In June, we know that we will get a lot more data,” ECB president Christine Lagarde said at a news conference. The ECB's primary refinancing rate remained unchanged at 4.50%.

Asia: Asian currencies were pressured by the strong dollar mid-week after the strong US inflation numbers were released. The JPY rose above the 153.0 level post-release of the US data, but the currency further weakened to above 153.5 as the dollar continued its rise due to safe-haven demand from geopolitical concerns. The absence of hints of immediate BoJ intervention to allay JPY's weakness meant little support for the currency. The CNY continued its month-long depreciation, with the USD/CY pair hovering near 7.238 from around the 7.190 level mid-last month. There was some consolidation near the 7.240 level for the CNY as the PBoC continued to set stronger-than-expected midpoint rates. In the middle of last week, we saw a PBoC fixing of 7.0968, or >1,650 pips, stronger than the spot rate. Yet, we think CNY will remain pressured ahead of more domestic data this week, comprising home prices, industrial production, retail sales, and the 1Q2024 GDP. However, today saw the PBoC maintaining the 1Y medium- term lending rate steady at 2.50%. Last week’s data was worrisome: March exports sank 7.5% y/y, and imports fell 1.9%, versus consensus of -1.9% and +1%, respectively.

Malaysia: With the strength in USD, the ringgit remained pressured and posted a weekly loss of 0.5% w/w. The USD/MYR closed at 4.771 on Friday, up from 4.748 the prior week.

Source: AmInvest Research - 16 Apr 2024

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