AmBank remains cautious on bond market

Investors will be watching

KUALA LUMPUR: AmBank Group Research has maintained its cautious view on the bond market as market turbulence will continue to add pressure to global inflation.

"We expect US 10-year yields to reach 3.10% with a high of 3.40%, and the consolidating path at around the 3.10% and 3.20% levels should there be a meaningful sell-off in risk assets like what happened in the early February equity rout," said AmBank Group head of research Anthony Dass.

He added that MGS yields are moving in tandem with the UST and the spread has compressed. However, risk sentiment on local government securities could create an outflow. 

"There is upside to the MGS yields despite the fact that the UST’s rising depends on local macro data, strong demand for emerging market bonds, pace of Bank Negara tightening and the ringgit. 

"We project the 10-year MGS yields at 4.20% with the possibility of touching 4.35%."

With regards to Euro bonds, yields will depend on growth, inflation and indication from the European Central Bank about the future of quantitative easing. 

"We are cautious on German bunds and project the yields would reach 1.00% and could touch a high of around 1.30%."

Dass said UK yields are estimated to be about 2% and could reach as high as 2.3%, depending on wage growth, inflation, the pound sterling and whether the trade conflict escalates into a full-blown trade war, which is not the research house's base case.