AS widely expected, the European Central Bank cut the refi rate by 10 basis points to 0.15% – a negative deposit rate, a targeted long-term refinancing operation with conditions designed to channel credit to non-financial public sector and to intensify preparatory work on outright purchase in the asset-backed securities (ABS) market but not everyone is pleased.
It didn’t disappoint but it was short of delivering the asset purchase plan and didn’t formally launch an ABS purchase programme. In reaction, we saw investors and businesses ramped up on placing large orders in an attempt to either capture forex gains or limit potential losses of which the euro traded through low of 1.3505 before those anticipation was quickly waned out and there were plethora of the euro and its crosses unwind seen across the street and that lifted the currency back through 200-moving average at 1.3651 to a high of 1.3670.
The yen saw short-term stops were taken below 102.40 aided by risk asset rallying across with the CBOE SPX Volatility index falling again back to 11.68. The yen slid 0.6% to nearly touch 102.30 – its weakest in month along with a recovery in US bond yields from a fall in the lower 2.40s last two weeks and on news that manufacturing in China grew at the quickest pace in five months in May.
Asian currencies with an exception of the rupiah and the rupee, were closed on an appreciation bias against the US dollar. The baht was the best performing currency with 0.81% gain against the US dollar on foreign interest in local equity and improving consumer confidence, which rose for the first time in 14 months in May after sinking to the lowest since October 2001.
The second best performing currency was the won, which rose 0.44% after South Korea’s first-quarter real GDP grew 3.9% – its highest level in three years boosted by new home construction and exports of electronics. On the other hand, the rupiah fell 0.49% against the US dollar over fears of rising current account deficits. Bank Indonesia said second-quarter current account deficit may double from US$4.19bil previously.
The ringgit (MYR) gained 0.26% against the US dollar after hitting a high of 3.292 on Wednesday, benefited largely ECB’s short of delivery, relatively positive macro data flows and selective buying on local equity.
On the macro front, Malaysia has surged 10 rungs to No. 15 in the 2014 Foreign Direct Investment Confidence Index (FDICI) released by A.T. Kearney.
It says Malaysia benefited from the strong inbound regional FDI flows and good performance in financial services, heavy industry and primary industry. Meanwhile, local sukuk issuance is expected to see steady growth of around 10% during 2014-15, says Moody’s Investors Service and the government-owned 1MDB said its debts do not pose any significant risk to the sovereign rating and stability of the country.
US Treasuries (UST) sold off in the long end of the curve after positive US data matched expectations. At the time of writing, the two-year yield traded relatively unchanged week-on-week to settle at 0.37% whereas the five- and 10-year yield accelerated 7-10 bps to settle at 1.61% and 2.57% respectively.
M'sian bond market
Lackluster performances from local govvies continued from last week without any major impetus to spark the Malaysian bond market as yields traded sideways. Some scattered buying was seen earlier in the week but it never caught momentum as the resistance was present with plenty of ready sellers. The weakening of the MYR also kept investors on the sidelines.
As of Thursday’s close, yields on three-, five-, seven-, 10-, 15-, 20- and 30-year Malaysia Government Securities (MGS) settled at a respective 3.49%, 3.73%, 3.94%, 4.07%, 4.42%, 4.59% and 4.84%. The week saw RM5.1bil worth of trades with a daily average trading volume of RM1.3bil, compared with last week’s RM2.1bil.
On to the local private debt securities market, secondary market activity remained jaded with most of the trading activity focused in the AA-segment. Total trading volume for the week was at RM1.4bil, averaging at RM360mil daily, compared with last week’s RM444mil. About 34% of the trading volume was contributed by the GG/AAA segment and 66% by the AA segment. No trades were reported done in the single A segment.
In the GG/AAA segment, GovCo Holdings bonds maturing 2018-2021 saw yields spiked 1-61 bps higher with collective trading volume of RM70mil while DanaInfra Nasional bonds maturing 2021-2024 traded 1-5 bps higher at RM80mil.
Elsewhere, names that traded unchanged include Woori Bank ‘09/14 at 3.6% with RM121mil changed hands and PLUS bonds maturing 2029-2030 at 5.14% and 5.22% respectively.
On AA segment, notable trades include BGSM ‘12/15 jumped 6 bps to 4.28% with RM212mil done and Golden Assets International ‘11/17 traded 2 bps higher at 5.04% with RM40mil done. In the FI sector, HLBB ‘06/19 garnered RM42mil worth of trades, inched up 2 bps to close at 4.83%. MBSB ‘12/18 was also traded at 4.48%, 8 bps higher from last traded level with RM30mil changed hands. A slew of Malakoff Power bonds maturing 2015-2016 saw yields rose 3- 9 bps to a range of 4.28%-4.44% with a volume of RM51mil. On the other hand, YTL Power ‘08/18 eased 26 bps to finished at 4.14%.
MYR IRS market
MYR interest rate swap (IRS) saw interest in the belly and long end of the curve after UST yields shot higher.
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