THE US dollar got off to a firm start with end of month activity, positioning and book balancing after a volatile month.
Greece’s default on its debt also directed flow towards safe harbour assets, boosting demand for the US dollar, yen and Swiss franc. The greennack also ended firm on better than expected ADP employment, ISM manufacturing, construction spending data. The ISM purchasing managers manufacturing index rose to a five month high of 53.5 in June suggesting domestic demand is allowing American’s factories to withstand sluggish overseas economies.
The yen climbed above 123 handle in response to better than expected US data flows rather than improving underlying Japan’s macro momentum. The second-quarter Tankan report came in stronger than expected due to an encouraging large manufacturers’ sentiment and upward revisions in their profit outlook, which will give credence to Bank of Japan that makes a less likely case for additional stimulus.
Asian currencies ended the week on a mixed note. The Singapore dollar suffered most with 0.28% decline against the US dollar and appeared to be in consolidation mode after coming off from a recent high of 1.3566. Top gainers were the rupee of 0.54% followed by the won of 0.35% against the US dollar respectively. Surplus rainfall in India narrowed from 28% to 19% while downpour was 39% below 50-year average. Should there be a convergence towards the 88% monsoon forecast by IMD, an anticipation of drought conditions may drive up inflationary expectations.
The ringgit enjoyed relief rally from a high 3.7843 at start of the week to low of 3.7485 on Wednesday in response to Fitch Ratings’ affirmation of long-term issuer default rating of A- and revised its outlook to stable from negative. This goes against its position that Malaysia’s credit ranking sits “more naturally” in the BBB range with a likelihood of ratings downgrade then. KLCI advanced 2.1% on Wednesday’s closing against Monday’s closing of 1,691 – which at the benchmark stock index at six-months low, the ringgit strengthened 0.94% from 3.784 – its weakest since July 2005 soon after the Government decided to de-peg the currency at RM3.800 in July 2005 and local bond markets saw rising trading interest as markets gapped 6 basis points down with offers on the benchmarks snapped up by players especially in the seven year tenor. The five-year credit default swap fell 5 basis points to 132 – the biggest drop since March.
US Treasuries rallied in response to the uncertainty in Greece and weaker-than-expected non-farm payroll numbers. This Sunday, Greece will get into referendum on whether to accept a bailout offer from Europe and the International Monetary Fund. On Thursday closing, the two-, five- and 10-year UST traded 3-8 basis points lower on weekly basis at 0.63%, 1.63% and 2.38%.
Malaysian bond market
Trading activities in local govvies were heavier compared with the last three weeks, as markets reacted on the rating outlook upgrade from negative to stable by Fitch Ratings. Markets were expecting a rating downgrade based on Fitch’s statement that Malaysia’s credit ranking sits “more naturally” in the BBB range in March 2015.The week also saw the re-opening of five-year Government Investment Issues ‘08/20 which garnered a bid-to-cover ratio of 2.207 times at an average yield of 3.743%.
Local govvies saw RM15.7bil trading volume, translating into daily average of RM3.9bil. This was higher compared with preceding week of total value of RM9.6bil traded, equivalent of daily RM1.9bil. On Thursday, the three-, five-, seven-, 10-, 15-, 20- and 30-year benchmark Malaysian Government Securities yields settled at a respective 3.19%, 3.6%, 3.85%, 3.98%, 4.15%, 4.29% and 4.7%.
In the secondary private debt securities market, we saw a decreased in trading activities this week compared with last week. Total trading volume stood at RM1.9bil, averaging at RM475mil daily, compare with last week’s RM501mil. Forty-nine 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.
In the GG/AAA segment, 2019-2022 tranches Aquasar Capital Sdn Bhd bonds eased 1 basis point lower to close at the range of 4.22% to 4.49% with a collective trading volume of RM190mil. Whereas the 2021-2044 tranches of DanaInfra Nasional hd bonds traded at mixed to settle at the range of 4.11% to 4.94% with a total trading volume of RM223mil. The AAA rated Genting Capital Bhd ‘06/22 saw yield decreased 19 basis points to 4.62% with only RM1mil done.
Trading activities in the AA segment this week is relatively lower compared with the preceding week. Notable trade is Jimah Energy Ventures Sdn Bhd ‘05/16 which garnered some interest from market players, with yields declining 9 basis points to close at 3.99% with RM10mil changed hands. 2016-2021 tranches of Alpha Circle Sdn Bhd bonds eased 3-19 basis points lower at 4.51%-5.27% with a collective trading volume of RM26mil. Meanwhile, Sarawak Energy Bhd ‘06/18 and ‘01/22eased 3 and 4 basis points to 4.17% and 4.48% with a total trading volume of RM15mil.
MYR IRS market
As at Thursday’s closing, the interest rate swap (IRS) curve shifted loweracross the curve as reflected by Fitch’srating announcement on Malaysia’s credit rating, together with the upgrade of Malaysia’s outlook.3-month KLIBOR remained unchanged at 3.69% during the week.
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