IN the first half of the week, the US dollar rode a safe haven rally to one-month high against the euro, its strongest in three months against Canada’s loonie and to fresh five- and six-year highs against the New Zealand and Australian dollars. Markets flocked for the US dollar due to swift downturn in oil, to ride out uncertainty stemming mainly from Greece’s ongoing debt crisis.
Interest rate differentials between lower yielding European government bonds and higher-yielding US Treasury (UST) also buoyed the dollar. However, with dovish Federal Reserve minutes released as some officials cautioned against premature rate hike decisions, the US dollar softened from Tuesday’s high. The overnight interest swap market now has just 4 basis points priced in for the September FOMC meeting and 9.5 basis points for December. This suggests that the implied probability of a September liftoff is roughly 20%.
The euro stabilised above five-week lows with hope intact that the latest round of negotiations between Greece and its creditors might finally yield an elusive deal to keep the nation afloat and a member of the eurozone.
Focus of the week was on China on the unprecedented series of support measures unleashed by Beijing to support equity markets which has raised fears about the stability of the world’s second biggest economy. The list of measures seems to be growing exponentially with each day as the authorities scramble to halt the market rout.
Some 1,439 companies out of 2,803 across the two bourses – Shanghai and Shenzen have now suspended shares. The persistent decline in A-shares forced US dollar/yuan to touch high of 6.2291 before reversing lower to levels around 6.2183 to trade at a discount of about 100 basis points of the yuan, pointing to a rising risk of more downside pressure on the currency ahead.
Asian currencies closed mix. The won and Taiwan dollar fell 0.15% and 0.07% against the US dollar despite strengthening in the yen. The baht was down 0.23% against US dollar after hitting a high not seen since September 2009 along with strong selling on local equity in line with stock market rout in China. China remains an important market for Thailand with exports to China representing 11% of total exports and Chinese tourists accounting for 18% of tourism revenue.
Selling pressure on the ringgit stalled after it broke the 3.800 psychological level to close below 3.7900. The local currency was the top gainer for the week with 0.65% gains against the US dollar. Bank Negara is said to be intervening for a third successive trading day to support the currency.
The local equity market was down slightly by 2 points to hover above the 1700 handle, cross Singapore dollar/ringgit remains at multi-year high of 2.8073 despite a weaker Singapore dollar and oil prices to trade below US$60/barrel. The five-year credit default swap stands at 133.3 – an elevated level, compared with its regional peers.
US Treasuries rallied in response to ongoing Greece crisis and the release of June Fed policy minutes which were perceived to be dovish. On Friday’s closing, the two-, five- and 10-year UST traded 2-4 basis points lower on weekly basis at 0.61%, 1.61% and 2.35%.
M’sian bond market
Trading activities in local govvies were lighter compared with last week, as market players were on risk-off mode in response to Greece’s uncertainties, rally in UST and strong selling pressure on the local currency at the start of the week.
Local govvies saw RM12bil trading volume, translating into daily average of RM3bil. This was lower compared with the preceding week’s total trading value of RM17bil or an equivalent of RM3.3bil daily. On Friday’s closing, the three-, five-, seven-, 10-, 15-, 20- and 30-year benchmark Malaysian Government securities yields settled at a respective 3.29%, 3.63%, 3.91%, 4.04%, 4.23%, 4.34% and 4.77%.
In the secondary private debt securities market, we saw an increased in trading activities this week compared with last week. Total trading volume stood at RM1.9bil, averaging RM476mil daily compare with last week’s RM462mil. Forty-five per cent of the trading volume was contributed by the GG/AAA segment and the remaining 55% by the AA segment.
Over in the GG/AAA segment, 2017-2020 tranches Manjung Island Energy Bhd bonds traded at a mixed to close at the range of 3.91% to 4.16% with a collective trading volume of RM52mil. Whereas the 2022-2026 tranches of Prasarana Malaysia bonds saw some sell-off, with the yields increasing 2-3 basis points to settle at the 4.2%-4.44% range with a total trading volume of RM135mil. The AAA rated Korean Development Bank ‘02/16 saw yield decreased 5 basis points to 4% with only RM55mil done.
Trading activities in the AA segment this week is relatively higher compared with the preceding week. Malakoff Power Bhd ‘12/15 and ‘12/30 eased 2 and 3 basis points to close lower at 3.97% and 5.56% with a total trading volume of RM40mil. Malayan Banking Bhd ‘09/18 and ‘05/19 traded at mix to settle at 4.64% and 4.49% with a collective trading volume of RM90mil. Meanwhile, 2016-2024 tranches of Sarawak Energy Bhd bonds traded at mix within 1-3 basis points to close at a range of 3.92% to 4.62% with a total trading volume of RM95mil.
Ringgit IRS market
As at Friday’s 11:00 am closing, the IRS curve shifted higher across the curve reflecting increase in uncertainties following the Greece referendum result. Three-month KLIBOR remained unchanged at 3.69% during the week.
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