Treasury Pulse

  • Business
  • Saturday, 23 Feb 2013

Global forex market

RISK off environment continued for the second week. The US dollar rallied as the weakness in the stocks on the back of mining and energy stocks and worries over the pending US government spending cuts fuelled a safe haven bid. There were unconfirmed rumours that a large US based commodity hedge fund was in trouble and was behind the sharp slide in commodity prices. Also, the January Federal Open Market Committee (FOMC) minutes did not paint a clear picture of the policy bias of the committee. There was no discussion on applying outcome-based rules to asset purchases but near-term projections were revised up relative to December, in large part due to a more modest assumption on fiscal drag.

The euro broke 50-SMA of 1.3316 on the back of strong profit taking activity despite stronger macro data flows. The advanced consumer confidence for the eurozone improved for the third monthly increase in a row, French Insee business confidence indicator bounced to a five-month high and the German IFO has risen off its lows over recent months but political dynamics in the eurozone and FOMC minute ruled the week. The head of the eurozone's bailout fund says Cyprus' debt situation continues to pose contagion risk while market attention is increasingly shifting to the weekend's Italian elections.

The broad-based US dollar strength saw the euro, Australian dollar and the pound all falling heavily. The Australian dollar printed a low of 1.2037 with heavy participation from the hedge fund community. The pound's poor performance was also a consequence of dovish minutes from the Bank of England's (BoE) February meeting and continuing weakness in the Gilt market, which forced speculative investors to increase their short bias. The currency dropped to its lowest level in more than eight months the current whipping boy of the G-10. Net speculative positioning in the pound futures in COT data showed long interest has plunged to the lowest level since last June.

The inconclusive G-7 and G-20 meetings were taken as an endorsement of support to Abenism and Bank of Japan (BoJ) policy board member Yoshihisa Morimoto was quoted as saying that BoJ will be implementing unprecedentedly large monetary easing. Price continued to remain in consolidation with 93 being the strong support level.

In reaction to this, Asia/Dollar ended the week below the 100-SMA of 117.93 with the South Korean won underperformed the most (-0.3%) followed by the peso and rupiah of 0.2% respectively. Better than expected macro data releases didn't help. South Korea's fourth-quarter external short-term debt fell to US$126.7bil from a revised US$132.6bil in the preceding quarter and the Philippine balance of payments surplus tripled to US$2bil Januart 2013 from US$600mil in December 2012.

The ringgit edged higher as the 3.100 level turned from a resistance to a support on the back of intensified talk of general election and downward consolidation in equity market.

UST market

During the week, US Treasuries (UST) seen trading mixed with the 10-year note again touching the 2% level after January FOMC minutes revealed that US policymakers were seen debating on the degree of future bond asset purchase, with some suggesting that the committee should consider varying the degree from the current level. At time of writing, UST yields on two-, five- and 10-year note seen at 0.25%, 0.84% and 1.98% respectively.

Malaysian bond market

This week all eyes were seen focusing on the fourth-quarter GDP release and local inflation data. Malaysia's GDP reportedly printed a 6.4% growth beating estimates for a 5.5% gain. For the full year of 2012, growth remains healthy delivering an annual growth rate of 5.6% surpassing the 5.1% annual rate achieved in 2011. Going forward, domestic demand is expected to remain as an anchor of growth. Meanwhile, domestic inflation rate gained 1.3% year-on-year for the month of January, coming in a tad higher versus the market expected rate of 1.2% according to a survey conducted by Bloomberg. Inflation previously printed a 1.2% level back in December last year. During the week, Bank Negara also announced the reopening details for three-year Government Investment Issues (GII) with an issue size worth RM3.5bil, with tender results yet to be released at time of writing.

In the Malaysian Government Securities/GII market, RM14.1bil worth of trades transacted at the time of writing with a daily average trading volume of RM3.5bil versus last week's average of RM1.4bil. Lower trading volume reported in the previous week was due to a shorter trading week in conjunction with the Chinese New Year public holidays.

As per Thursday's close, most benchmark yields changed about 1-3bps versus previous week's close. Benchmark yields on three-, five-, seven-, 10-, 15- and 20-year seen settling at 3.05%, 3.2%, 3.42%, 3.47%, 3.73% and 3.91% respectively.

On the PDS space, total trading volume totalled RM2.1bil, of which 55% came from the GG/AAA, 43% from the AA segment and the remainder from the single A segment. As of Thursday's close, daily average trade volume was RM546mil, versus the RM356mil average seen in the prior trading week.

In the GG/AAA segment, active trading emerged for GIC'16 with a volume of RM120mil reportedly transacted. The mentioned bonds ended biddish, easing about 2 bps from previous last trade back in January, with yields closing at 4.07% level. On a related note, a slew of Putrajaya Holding bonds maturing 2017-2021 garnered a collective volume of RM115mil.

In the AA-rated segment, banking and power sector bonds continue to dominate. Slew of Teknologi Tenaga Perlis Consortium (TTPC) bonds maturing 2015-2018 was transacted with RM75mil done. Yields on TTPC'7/15 and '7/16 ended at about 3.98% and 4.12% respectively.

MYR IRS market

The ringgit (MYR) interest rate swap (IRS) rates were traded lower as regional risk sentiment retreats despite the higher-than-expected Malaysian GDP growth. The IRS curve ended the week by circa 15 bps lower.

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