Treasury pulse


  • Business
  • Saturday, 15 Dec 2012

Global forex market

THE US Federal Reserve has practically issued itself a blank cheque last Wednesday. It is an open ended cheque book that will purchase longer-term Treasury securities at a pace of US$45bil per month after Operation Twist expires at the end of this month. This is in addition to the purchases of mortgage-backed securities totaling US$40bil per month. The surprise result though was the decision to pursue further policy accommodation until numerical macro targets. With the promise to bring down unemployment rate to less than 6.5% and to keep inflation below 2.5%, the longevity of this programme is well anchored. It is not only here and it is here to stay essentially almost forever. We saw the same reaction after the induction of the quantitative easing 3 mortgage-backed securities purchases programme on Sept 13. The equities markets levelled off immediately after the last-gasp advance and the greenback triggered an abrupt reversal not a day later.

The yen position continued to be guided by election expectations. Recent polls suggest that not only will Shenzo Abe will return as Prime Minister with his Liberal Democractic Party but that a partnership will find the two-thirds majority in the lower house of Parliament after the shake up. The yen found itself at multi-month lows against US dollar and in some cases, at multi-year low against crosses. TOn one hand, most central banks adopted a wait-and-see approach to managing policy rates. Bank Indonesia, Bank of Korea and Bangko Sentral ng Philipinas kept its policy rates steady at 5.75%, 2.75% and 3.5% respectively. But on the other hand, we saw the People's Bank of China's strong onshore intervention in the forward markets given the widening spread between the offshore yuan and one-week onshore forward rates to the highest level since January of this year. Policymakers have consistently demonstrated their unwillingness to move the fixing around to accommodate the pressure on the spot market. The Hong Kong Monetary Authority also stepped into the market, selling HK$6.2bil worth of Hong Kong dollar as the local currency repeatedly hit the strong end of the trading range on the back of booming US dollar bond issuance as some issuers converted the proceeds to Hong Kong dollar for trade or investment use.

The latest macro releases across Asia remained mixed. Export numbers in the Philippines, Malaysia, India and China surprised on the downside: Philippines' October exports grew 6.1% compared with 22.8%; Malaysia's October exports fell 3.2%; more than market expectations; India's November exports growth worsened to 4.2% from a decline of 1.6% in October on falling merchandise shipments and China exports grew 2.9% in November compared with 11.6% pace a month before. Looking into 2013, we however take some comforts the positive vibes from the latest Organisation for Economic Cooperation and Development's composite leading indicator for Asia's top five economies, which gained 0.03 point on the back of stronger growth momentum in China and India.

US Treasuries (UST) market

At the time of writing, UST yields seen edging a tad higher this week versus prior week's close ahead of industrial production data which the general market consensus expecting some form of improvement. Yields on two-, five- and 10-year notes seen settling at 0.25%, 0.69% and 1.73% respectively.

Malaysian bond market

During the week, RM3.5bil reopening of seven-year Malaysia Government Securities (MGS) drew a bid to cover of 2.077 times at an average yield of 3.476%. With the mentioned bond marking the final tender for 2012, Year-to-date, collective MGS and Government Investment Issues (GII) issuances stands at RM96.2bil inclusive of an MGS switch-auction amounting to RM2.2bil which was done in March.

In the MGS/GII market, RM6bil worth of trades transacted at the time of writing with a daily average trading volume of RM1.5bil versus last week's average of RM2bil. As per Thursday's close, yields on benchmark MGS three-year seen anchoring at 3.11%. Meanwhile yields at the belly and long-end generally ranged-bound. Yields on five-, seven-, 10-, 15- and 20-year seen settling at 3.26%, 3.48%, 3.5%, 3.7% and 3.91% respectively.

In the private debt securities market, a total of RM3.6bil worth of trades were seen transacted with 67% coming from the GG/AAA, 30% from the AA segment and the balance from the single A segment. For the week, daily average trade volume was RM920mil, from the RM730mil average seen in the prior trading week.

In the GG/AAA segment, ADCB Finance 11/17 and 5/17 garnered a collective volume of RM352mil worth. The mentioned bonds seen trading at 4.16% and 4.1% respectively. Other notable trades include a slew Cagamas bonds maturing 20122028 with a collective volume of RM556mil worth transacted.

In the AA rated segment, a slew of Maju Expressway Sdn Bhd bonds maturing 2016-2025 seen emerging with total volume of RM80mil worth of trades done. On a related note, we saw Development Bank of Kazakhstan '17 traded on biddish tone with yields easing to 5.35% level with RM20mil worth transacted.

Ringgit interest rate swap (IRS) market

The ringgit IRS rates were traded higher amid higher US Treasury yields and regional rates. Market players were seen adjusting their position ahead of year end closing. The curve ended the week 2 ~ 8 bps higher.

● For enquiries, contact: fx-research@ambankgroup.com or bond-research@ambankgroup.com

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