Global forex market
THE US dollar index, DXY, remained its upward momentum boosted by the better-than-expected core inflation data and the comments on interest rates from Federal Reserve chair Janet Yellen last Friday which enticed strong buying interests from traders upon returning from the Monday holiday.
DXY rebounded from its recent low of 93.1 to the one-month high of 97.7 as a growing set of improving economic data breathes new life into the rally of DXY. The underlying figures in the overall April durable-goods orders show signs of pickup in business spending.
The core capex orders, a key measure of business investment, rose for the second consecutive month, suggesting companies are slowly starting to boost investment after the sharp decline in February. Elsewhere, positive consumer confidence data and new home sales data also helped to support the strengthening of DXY.
The euro fall below the 1.10 level and touched its one-month low of 1.08 on a surging greenback and doubts over Greece’s ability to repay its debts. Concerns over whether Greece would have enough money to make a payment of about 1.6 billion euros to the International Monetary Fund in June resulted in the selling of the euro to buy the US dollar.
German bonds also benefited from the uncertainty in the Greek debt negotiations, with 10-year yields down 7 basis points at the time of writing. The declining trend in the net-long euro positions since May also contributed to the weakening of the euro.
The yen weakened to a 13-year low, fueling the longest rally in Nikkei 225 Stock Average since 1988. The yen has borne the effect of a resurgent US dollar, slipping the most among Asian currencies at the time of writing as monetary policies in Japan and the United States diverge. A weaker yen, however, helps to boost export revenue for Japan’s largest companies, which reported record profits in the last fiscal year.
It was no surprise to note that Asia currencies ended the review period with a negative bias against the US dollar. Leading the loss were the ringgit, followed by the baht and won. The weakening of the baht was mainly due to the weaker-than-expected of Thailand’s trade data. Comments from Bank of Korea’s chief that the country’s growth is facing increasing uncertainties exerted pressure on its currency.
As mentioned, the ringgit leads the loss among Asian ex-Japan against the greenback following sharp decline in local equity markets and also the weaker crude oil prices. As a result of the regional plunge, KLCI touched the four-month low at the 1,749.78 level before rebounded above 1,750 level.
Crude oil prices declined throughout the week due to the strong US dollar and the news that Iraq plans to raise exports by 26% in June. On the macro front, unemployment rate in Malaysia dropped 0.2% to 3% in March, with the labour force participation rate increased 0.3% to 67.7%.
Moody’s Investors Service said that Moody’s-rated issuers – including corporates and financial institutions – in Malaysia are showing that they could withstand external and domestic challenges, while the economy continued to grow, although at a moderating pace. Moody’s also if downtrend in oil prices continued over the course of 2015 and 2016, the rating agency would reconsider its core views of relative stability for the sovereign and rate entities in Malaysia over the coming quarters.
Malaysian bond market
The week remained quiet for the local govvies as market players remained on the sidelines as there was no clear direction of where the market was heading. The week also saw the re-opening of seven-year Government aInvestment Issues ‘07/22 which garnered a bid-to-cover ratio of 2.087 times at an average yield of 3.914%.
Local govvies saw RM6.5bil trading volume, translating into daily average of RM1.6bil. This was lower compared with the preceding week’s total trading value of RM10bil, a daily equivalent of RM2bil. On Thursday, the three-, five-, seven-, 10-, 15-, 20- and 30-year benchmark Malaysian Government Securities yields settled at a respective 3.34%, 3.59%, 3.8%, 3.91%, 4.14%, 4.26% and 4.64%.
The secondary private debt securities market also saw slight decrease in active trading, compared with last week. Total trading volume for the week stood at RM3 bil, averaging at RM757mil daily, compared with last week’s RM769mil. Forty-eight per cent of the trading volume was contributed by the GG/AAA segment, 48% by the AA segment, with the remaining by the A segment.
On the GG/AAA segment, PTPTN ‘03/24 was heavily traded, with the yields declining 1 basis points to 4.26%, with RM290mil changed hands. Another notable trade in the GG bonds is the BPMB ‘09/21 and ‘09/24, with the yields moving 1 and 2 basis points lower to 4.08% and 4.27% with a total of RM30mil done.
Meanwhile, 2020-2031 tranches of Manjung Island Energy bonds traded 2-5 basis points lower to settle at a range of 4.15%-4.81%, with a collective trading volume of RM50mil.
Over in the AA segment, AmIslamic Bank ‘09/16 and ‘09/17 were well bidded. The yields of both bonds declined 3 basis points to 4.01% and 4.16% respectively, with a collective trading volume of RM120mil. 2015-2030 tranches of Malakoff Power also gained some interest from the market players, with the yields declining 1-2 basis points to settle at a range of 3.98%-5.73%, with RM136mil done.
Elsewhere 2026-2032 tranches of DUKE bonds traded 3-18 basis points lower to a range of 4.86%-5.22%, with a collective trading volume of RM61mil.
Ringgit IRS market
As of Thursday closing, the ringgit interest rate swap (IRS) curves shifted marginally higher and steeper due to Yellen’s comment on the borrowing costs and also the increasing uncertainties in the eurozone, particularly the Greece’s problem. Three-month KLIBOR declined 1 basis point to the level of 3.69%.