Treasury Pulse


  • Business
  • Saturday, 17 Mar 2012

Global Foreign Exchange Market

THE US dollar is going against the grain. Last Tuesday, the Federal Open Market Committee had their meeting and Fed chairman Ben Bernanke came out for the first time stating a more optimistic outlook for the US economy, albeit a cautious outlook. The Fed also held the policy rate unchanged as anticipated by the market.

Under such circumstances, optimistic statements like these made in the times of “gloom and doom” we are in, would provide light in the end of the tunnel, and hence, rally markets, especially risk assets and higher yielding currencies.

This was not the case. Asian currencies weakened against the US dollar. Most glaringly were the ringgit and yen , which weaken by 0.81% and 1.84% respectively this week. The ringgit had been one of the best performing Asian currencies this year but weakened to a high of 3.070 this week.

The yen behaved as expected, going higher or weakening, perhaps a switch from the US dollar to the yen as a funding currency. A funding currency typically has a low interest rate. Investors borrow the funding currency and invest in currencies with higher interest rates.

The Nikkei topped 10,000 predicated that a weaker yen would help Japanese exporters. Indeed, the Bank of Japan has been trying to persuade the market to accept a weaker yen the past few months to no avail save the past few weeks. The yen closed at 83.54 at the point of writing.

Another emerging theme that has been mentioned more frequently is “recovering US vs slowing China/Asia”. Lending credence to this are the recent data released on the Chinese economy; exports rose in February, growing 18.4% y/y, up from January's -0.5% y/y, but the gain was lower than the expected of 31.1% y/y.

Import growth surprised on the upside, gaining 39.6% y/y in February. Chinese inflation eased to 3.2% y/y in February from 4.5% y/y in January.

On the home front, Bank Negara held the overnight policy rate steady at 3%, citing improvements in the external environment and expansion in private consumption and domestic demand. The ringgit weaken in tandem with regional currencies to a high of RM3.070 from RM3.032 against the dollar in the beginning of the week, but close at 3.0493. In tandem, the Bloomberg-JPMorgan Asia Dollar weakened to 116.93 from 117.00 at the beginning of the week.

US Treasuries Market

US Treasuries seen trading on a softer note this week amid renewed optimism following a somewhat more upbeat FOMC statement release. US policymakers raised their assessment of the US economy on March 13, expecting moderate growth over the coming quarters versus previous expectations in terms of modest growth prospects. At time of writing, yields on US Treasuries seen backing up with 2-year and 10-year reaching 0.56% and 2.28% respectively, up by 12bps and 25 bps from previous week's close.

Malaysian Bond Market

On the macro front, this week reports revealed that Malaysia's industrial production growth dipped to a 6-month low of 0.2% y/y in January versus a prior level of 2.9%. A lower reading mirrored slower manufacturing activities during the Lunar festival in January combined with weaker demand from advanced economies.

Benchmark MGS yields were seen edging higher across the maturity spectrum during the week, tracking higher local IRS rates and upward movement in US Treasury yields. As of Thursday's close, benchmark 3-year, 5-year, 7-year, 10-year, 15-year and 20-year settled at 3.13%, 3.32%, 3.49%, 3.61%, 3.90% and 4.00% respectively. Expect bargain hunting trades to gradually emerge as recent spike in yields may attract buying interest from some investors.

In the MGS/GII market, RM14.9bil trades was transacted with a daily average trading volume of RM3.7bil, much higher compared to a prior week's daily average volume of RM2.7bil.

The same week also witnessed the RM3bil issuance of new 15-year benchmark MGS, bringing the total year-to-date MGS/GII issuance to RM18bil. The auction garnered a bid-to-cover ratio of 1.65x at an average yield of 3.892%.

In the PDS market, a total of RM3.8bil worth of trades done, generating a daily average trading volume of RM962mil compared to RM582m in the preceding week. As usual, the trades were skewed towards the GG/AAA and AA segments, which accounted for about 72% and 26% respectively of the total trading volume while the remaining balance from the single-A segment.

In the GG/AAA segment, notable trades include PLUS bonds maturing in 2019-2038 which saw transactions done in the range of 3.80% to 4.71% with a total trading volume of RM582mil. Meanwhile, Kexim bonds maturing in 2012-2017 were also actively traded, generating combined volume amounting to RM484mil.

In the AA-segment, trades continue to focus on the power and banking sector bonds. Tanjung Bin Energy bonds maturing in 2017-2032, which saw its book opening last Friday, traded in the range of 4.45% to 6.05%. Kencana 08/16 garnered strong volume of RM180mil with yields settling at 4.28%. Meanwhile, RHB Bank 11/12 traded 2 bps lower to close at 3.52% with transacted volume of RM95mil.

MYR Interest Rate Swap (IRS) Market

MYR IRS rates jumped significantly as regional rates were taken higher after Fed's statement and US treasuries slid. Volumes were much higher as players reduce the expectation of future rates cut. MYR IRS rates ended the week 3~18 bps higher.

For FX enquiries, please contact:

fx-research@ambankgroup.com

For Fixed Income enquiries, please contact:

bond-research@ambankgroup.com

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