Treasury pulse

Global forex market  

THE US dollar recovered from multi-week lows against the euro and the yen from a risk-off starts to the week, which dragged the greenback to slip to two-week lows against its biggest peers as worries intensified about slowing growth abroad while Chinese stocks sank more than 8% in eight years as concerns grow over the sustainability of the government-supported market rebound.

Well received US corporate earnings reports were also weighed in. US equities settled higher to end five days of consecutive losses. While US Federal Open Market Committee kept its policy rate unchanged in this meeting, markets continued to pay close attention to tone and forward guidance.

We are nearing the end of the year from Fed’s meeting stand point and participants will be keen to understand if it intends to raise policy rate this year. September seems to be the target period the market is holding onto, some participants are even suggesting two hikes could be possible this year: one in September and another in December.

The euro surged above 1.10 to mid-July’s high after stronger-than-expected German IFO business confidence showed that it was weathering uncertainty related to the Greek crisis. However, the currency seems to be in consolidation within broad range 1.089-1.1150 with a lack of catalyst to move in either direction.

The yen continued to inch lower to 123.40 amid improved risk sentiment as Chinese stocks pulled back from a sharp sell-off while commodity prices were showing sign of stability. The Nikkei was down 0.75% for the week but is 472 points away from breaking above 21,000 – a level not seen since November 1996. Data-wise, Japan’s large retailers’ sales hit a big miss as it plunged 0.3% from 5.3% in May.

The US dollar remained heavy against the Asian currrencies, mainly on month-end flows and position adjustments ahead of Fed meeting. The resilience of commodity-related currencies was put to test as commodity prices being challenged. Excess supply still hangs over the market along with heavy selling from financial investors in recent weeks, which means an intensifying market share war. As a result of this, Asian currencies ended the week on weaker footing against the greenback. Leading the pack were the baht, which weakened 0.83% in response to strengthening of US dollar and the negative macro flows, followed by the Singapore dollar and the peso as markets continued to digest the post-meeting FOMC statement.

Meanwhile, the rupee strengthened against the greenback as Indian custodial banks sold US dollar and local stocks rebounded. There was also talk of some fund inflows for an e-commerce company.

The ringgit touched the 3.8288 level, the highest since September 1998 as one-month NDF touched a record-high of 3.8605 along with sharp increase in one-month US dollar/ringgit volatility. Cross Singapore dollar/ringgit, however, lower towards 2.770 while local equity rebounded towards above 1,700 handle. There was no immediate reaction by the market amid Cabinet reshuffle by Prime Minister Datuk Seri Najib Tun Razak.

UST market

US Treasury (UST) yield curve was flatter as investors shifted money out of shorter-dated notes and into longer-dated bonds amid a faster growing US economy in the second quarter, increasing market expectations of a rate hike from the Fed in September. On Friday’s 11.00am pricing, the two-, five- and 10-year UST traded at 0.731%, 1.63% and 2.25%.

Malaysian bond market 

Trading activities in local govvies were lighter this week as market players were waiting for more hints from the FOMC meeting.

Meanwhile, local govvies were in selling pressure, as the ringgit continues its decline. The week saw the re-opening of 10-year Government Investment Issues ‘10/25 which garnered a bid-to-cover ratio of 1.854 times at an average yield of 4.105%.

Local govvies saw RM14.5bil trading volume, translating into daily average of RM3.6bil. This was lower compared with the preceding week’s total trading value of RM21.7bil or an equivalent of RM4.3bil daily. At Friday’s 11.00am pricing, the three-, five-, seven-, 10-, 15-, 20- and 30-year benchmark Malaysian Government Securities yields settled at a respective 3.18%, 3.57%, 3.95%, 4.07%, 4.3%, 4.36% and 4.7%.

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 RM3.4bil, averaging RM841mil daily compared with last week’s RM362mil. Thirty-one per cent of the trading volume was contributed by the GG/AAA segment, 68% by the AA segment, with the remaining by the A segment.

In the GG/AAA segment, 2021-2045 tranches DanaInfra Nasional Bhd bonds traded mixed to close at the range of 4.05% to 4.93% with a collective trading volume of RM215mil. Meanwhile, 2023-2036 tranches PLUS bonds traded at a mixed to settle at the range of 4.32%-4.96% with a total trading volume of RM110mil. The AAA rated Danga Capital Bhd ‘01/30 saw yield declining 1 basis point to settle at 4.68% with RM80mil changed hands.

Trading activities in the AA segment this week were relatively higher compared with the preceding week. Malaysia Airport Holdings Bhd ‘12/24 saw yield declining 2 basis points to close at 5.03% with a trading volume of RM106mil. Bright Focus Bhd ‘01/29 eased 6 basis points lower to close at 5.4% with RM70mil done.

Meanwhile, Tanjung Bin Energy Issuer Bhd ‘09/31 eased 8 basis points to settle at 5.4% with a total trading volume of RM30mil.

Ringgit IRS market

As at Friday’s 11.00am pricing, the interest rate swap (IRS) curve shifted higher in response to a positive US GDP data in the second quarter in return increased market expectations of a rate hike in September. Three-month KLIBOR remained unchanged at 3.69% during the week.

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