GEOPOLITICAL risk in the Middle East dominated this week’s proceeding, which saw the general risk-off tone prevailing through in various asset classes and the usual “safe haven” currencies flows.
The greenback rose against its riskier peers from parts of Europe, Canada, Australia and Asia, but lost ground to the Japanese yen, another safer port sought after during periods of heightened uncertainty as the escalating tensions in Syria might lead to international involvement in the Mediterranean nation’s civil war following the statement by the US Secretary of State John Kerry that there was “undeniable” evidence that the Syrian government recently used chemical weapons on civilians, calling the act a “moral obscenity”.
The euro didn’t capitalise much from a report that showed German business optimism rose to 16-month highs in August. The pound fell to 15 August’s lows. Canada’s dollar moved toward Friday’s July 9 low against the greenback, while the Aussie buck neared its lowest in three weeks. Dovish jawboning by a top Bank of Japan official, who affirmed that the bank would keep policy at an easy setting until it achieved its 2% inflation goal, added to the yen’s cooler tone.
Adding to the uncertainty market backdrop, investors have grown somewhat less confident that the Fed may be on the verge to pulling back on monetary stimulus, following disappointing data on durable goods and new home sales. US new orders for durable goods fell by 7.3% month-on-month (m-o-m) in July, after slowing to +3.9% in June and from +5.5% in May. This was the first decrease in four months and the biggest since August 2012, as businesses turned cautious and reduced their spending, overshadowing a positive consumer confidence read in the world’s largest economy which increased to 81.5 in August from 81.0 a month earlier.
The Indian rupee touched all time low with top loss of 6.6% along with the lack of confidence in policy puts pressure on bond markets while the central bank opens forex swap lines for state-owned oil companies effective immediately. This was followed by the baht of 0.68% loss with offshore forward points remain elevated to provide an incentive for offshore to sell existing forex-hedged bond positions.
North-East Asian currencies were largely unscathed with the Singapore dollar gained 0.28%, Taiwanese dollar of 0.06% and the South Korean won of 0.02% against the US dollar due huge external reserves and stronger export growth. South Korea’s exports reported a strong rise of 15.9% year-on-year in the first 20 days of August.
The ringgit (MYR) bounced to a high of 3.3346 on Wednesday on equity-related outflows. Bank Negara governor Tan Sri Dr. Zeti Akhtar Aziz told the press that there was no target for the exchange rate and see intervention necessary only if the “market is disruptive and disorderly”. The Malaysian Investment Development Authority reported that Malaysia recorded RM97.4bil in approved investments during the first half, a 30% rise from RM75bil previously.
US Treasuries (UST) at the long-end rallied in the early part of the week following the release of weaker-than-expected US data and on safe-haven flows over a possible military strike on Syria. However, the gains were marginally reversed on subsiding concerns over the military action and better US GDP data. At the point of writing, the two-year yield was higher by 2bps at 0.39% while the five- and 10-year yields were 1-4 bps lower at 1.61% and 2.77% respectively.
Malaysian bond market
Geopolitical concerns, weak emerging markets’ currencies including the MYR and the sell-off in the equities markets weighted on the local govvies. Despite the turmoil, the week saw the debut of the inaugural 20-year Government Investment Issues with a size of RM2.5bil. The tender attracted a bid-to-cover ratio of 1.622 times with an average yield of 4.582%.
As of Thursday’s close, benchmarks Malaysian Goverment Securities yields were higher by 4-25 bps from prior week with the exception of the 15-year benchmark which was untraded during the week. Yields on three-, five-, seven-, 10- and 20-year were last dealt at a respective 3.47%, 3.7%, 3.91%, 3.99% and 4.45%. The week saw RM4.9bil worth of trades changing hands with a daily average trading volume of RM1.2bil, from RM1.4bil last week.
On the local private debt securities market, total trading volume amounted to RM1.8bil versus RM1.7bil previously. Fifty-one per cent of the trading volume was contributed by the GG/AAA segment, 45% by the AA segment and the balance by the A segment. Daily average trade volume was higher at RM460mil versus the RM334mil average previously.
In the GG/AAA segment, active trading was seen for Prasarana’s bonds maturing 2023-2029 which garnered a collective trading volume of RM215mil with yields mostly flat. Other notable trade includes PLUS bonds maturing 2026-2034 with a collective trading volume of RM160mil.
In the AA space, trading activities continued to be skewed towards power sector name, including YTL Power ‘09/13 which saw yields notching 2bps higher. Construction names were also actively traded. Notable trade in this sector includes IJM ‘10/13 which was traded at 3.24% with RM140mil changing hands.
MYR IRS market
MYR IRS rates moved higher in tandem with regional rates as US quantitative easing expected tapering and regional fund outflow continue to exert upward pressure on rates. The IRS curve ended the week by 5~ 12 bps higher
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