Treasury Pulse

Global Forex Market

HOW low can the dollar go?

To a 13-month low as seen this week driven by the euro rally and the opposition by two Republican senators of the party’s healthcare bill which has impeded the passing of the legislation.

The dollar index declined by 0.89% to 94.31 on Thursday. On the data front, building permits and housing starts in June climbed morethan expected to 1.25 million and 1.22 million, respectively.

Meanwhile, initial jobless claims fell to 233,000 for the week ending July 15 compared to 248,000, previously. Brent crude oil sustained its rebounded this week with a rise of 0.80% to US$49.30/barrel after the EIA reported that US domestic crude supplies dropped by 4.7 million barrels for the week ending July 14. Oil prices were also supported by a report that Saudi Arabia is considering cutting its crude exports by 1 million barrels a day in order to offset a rise in output from Libya and Nigeria. At the latest monetary policy meeting, the European Central Bank (ECB) left its interest rate unchanged at 0% and maintained its monthly 60 billion euro quantitative easing programme.

ECB’s Mario Draghi stated during the press conference that policymakers will begin discussing possible changes to its QE in September. This had led the euro to surge by 1.4% to a oneyear high of 1.1631 on Thursday. During the week, the euro also managed to leverage on the dollar weakness as well as June’s inflation which improved to a flat reading compared to 0.1% m/m in May. The pound was the worst performing G10 currency this week, as it plunged against the dollar by 0.95% dragged the rally in the euro and weak inflation data which had lowered expectations for a rate hike this year.

Inflation in June moderated to 2.6%y/y from 2.9%y/y in May driven by lower prices of petrol and diesel. The pound was also weighed down by political concerns as Brexit talks commenced on Monday in Brussels. The yen strengthened by 0.6% amid the weaker dollar despite more bearish outlook by the central bank. At its latest monetary policy meeting, Bank of Japan (BoJ) left rates unchanged at 0.1% and its government bond buying programme intact at an annual pace of 80 trillion yen.

However, BoJ had moved its goalpost for the sixth time, shifting the 2.0% inflation deadline to around the fiscal year starting in April 2019. All Asia ex-Japan currencies appreciated against the dollar except for the Hong Kong dollar, Taiwanese dollar and Philippine peso. In China, GDP expanded at the same pace as in 1Q2017 at 6.9% y/y, suggesting the economy is poised to perform better than the official projection of 6.5% in 2017.

Growth was supported by better export performance and higher production, namely that of steel. In Singapore, trade surplus widened to S$6.0bn from S$4.8bn in May, its largest since March 2017 aided by larger nonoil domestic exports and moderating nonoil imports. The ringgit appreciated by 0.03% against the softer greenback this week supported by higher crude oil prices. Lower fuel prices, moderate food price and flat nonfood prices saw the headline inflation easing in the month of June for the third straight month and staying below the 4% for the second month in a row.

June’s headline inflation was 3.6% with core inflation at 2.5%. Meanwhile, unemployment rate was steady at 3.4% in May for the third consecutive month with net employment up by 24.8 thousand and net unemployment down by 4.4 thousand.

US Treasuries (UST) Market

US Treasury yields fell across the curve this week over increasing doubts of President Donald Trump being able to materialise his pro-growth policy agenda. At Friday’s 11am pricing, the 2, 5 and 10year UST traded at 1.36%, 1.87% and 2.33% respectively.

Malaysian Bond Market

Local govvies yield curve fell this week amid the drop in global bond yields after weak US and UK inflation data. Lower yields were also driven by the slowdown of Malaysia’s inflation in June. At Friday’s 11am pricing, the 3, 5, 7, 10, 15, 20 and 30year benchmark MGS yields settled at 3.35%, 3.69%, 3.89%, 3.95%, 4.39%, 4.55% and 4.80% respectively. Trading activities rose this week compared to the previous week where benchmark local govvies registered a trading volume of RM8.5bil compared to the previous week’s value of RM7.8bil. The secondary corporate bonds market also recorded more trading activities compared to last week.

Week to date, total trading volume was higher at RM1.84bil compared to last week’s RM0.6bil. About 41% of the trading volume was contributed by the GG/AAA, 52% by the segment and the remaining 7% by the A segment. In the GG/A segment, there was interest in the toll road sector where notable trades included 2020 2036 Projek Lebuhraya Usahasama tranches whereby yields closed mixed at 4.10%5.17% with RM240mil changing hands.

There was also interest in the transport sector where Prasarana Malaysia tranches maturing 20222024 saw yields close mixed at 4.08%-4.25% with a trading volume of RM155mil. Also having garnered some interest was ‘04/22 Aman sukuk which recorded a trading volume of RM50mil with yields 4bps higher at 4.34%.

Meanwhile, ADCB Finance (Cayman) bond maturing ‘11/17 traded at 3bps lower yields of 4.20% with RM30mil changing hands Elsewhere in the segment, notable trades included 20192026 BGSM Management tranches which recorded a total trading volume of RM120mil with yields unchanged or higher at 4.48% 4.99%.

Also garnering interest this week was 2020 2035 SPR Energy tranches which recorded a collective trading volume of RM95mil where yields traded unchanged at 4.64%5.95%.

Meanwhile, ‘08/35 and ‘08/36 Lebuhraya Duke Fasa 3 bonds traded at higher yields of 5.23% and 5.29%, respectively, with a collective trading volume of RM80mil. IJM Corp bonds maturing ‘04/21 and ‘06/22 recorded higher yields at 4.42% and 4.50%, respectively, with RM71mil changing hands.

MYR IRS Market

As at Friday’s 11am pricing, the IRS curve fell despite the higher 5-year CDS. Elsewhere, the 3-month Klibor remained at 3.43%.

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