Treasury Pulse

Global Forex Market

The dollar witnessed a volatile week, starting the week on a weaker note following the Fed Powell’s speech during the Jackson Hole meeting where he pledged to “act as appropriate to sustain the expansion”, suggesting additional easing will be delivered by the Fed.

It was exacerbated by another episode of trade tension with President Trump announcing a hike of tariff rates on most Chinese imports — the existing 25% duties on US$250bil goods will experience a larger tariff of 30%, effective 1 Oct while tariffs on another US$300bil will now be 15% instead of 10%. The move resulted in a sell-off in the equities market.

However, the risk-off sentiment was short-lived, aiding support for the dollar to rebound firmly after both the US and China signalled willingness for calm negotiations. Besides, the dollar managed to recover further after Beijing indicated it was not in a rush to respond to the latest round of tariffs imposed by Washington. By the end of the week, the dollar had appreciated by 0.9% to 98.507.

Brent crude oil gained 2.9% at US$61.08/bbl due to a larger-than-expected supplies cut in the week ending 23 Aug by 10 million barrels from 2.7 million barrels in the previous week (cons: -2.1 million), coupled with the looming Hurricane Dorian in Florida, raising fears that offshore US crude producers may slow output if the storm passes into the Gulf of Mexico over the weekend.

The euro plunged 0.8% to 1.106 owing to the stronger US dollar. Despite Italian political parties striking an agreement that averted a market-unfriendly general election, the positive news was unable to offset the risk of massive monetary stimulus from the ECB.

Nevertheless, economic release for the week were rather mixed with: (1) Germany Ifo Business Climate easing to 94.3 in August from 95.8 in July (cons: 95.1); (2) September Germany GfK Consumer Confidence marginally up at 9.7 (cons: 9.6); (3) August Germany unemployment rate flat at 5%; and (4) August EU Business Confidence rebounding to 0.11 from -0.11 in July (cons: 0.08).

The pound depreciated by 0.7% to 1.218 after Prime Minister Boris Johnson confirmed that parliament would be suspended days after lawmakers return from their summer recess and would come back for the Queen’s Speech outlining the government’s post-Brexit plans on Oct 14. It is also acknowledged as a highly-controversial move that would restrict parliamentary time before the Brexit deadline and increase the chances of the UK leaving the EU with no deal.

The yen weakened by 1.1% to 106.5 on improved risk appetite in global markets. Meanwhile, economic release during the week includes: (1) June Leading Index easing to 93.3 from 94.9 in May (cons: 93.3); August Consumer Confidence slipping to 37.1 compared with 97.8 in July; and (3) July unemployment rate edging lower to 2.2% from 2.3% in June (cons: 2.4%)

The majority of Asian ex-Japan currencies weakened against the stronger dollar save for the Philippines peso, which rose 0.1% to 52.22. Meanwhile, the yuan came in as the worst performer, down 0.7% to 7.145, an 11-year low. The sell-off was triggered after China announced the imposition of additional retaliatory tariffs about US$75bil worth of US imports, putting as much as an extra 10% on top of existing rates in response to the US tariffs announced earlier in August. However, officials later indicated it was not in a rush to respond to the latest round of US tariffs, which helped ease some of the trade tension.

The ringgit weakened by 0.6% to 4.217, tracking closely the weakening yuan. Likewise, the KLCI fell 0.8% to 1,595.2 while recording a net foreign outflow of RM544.2mil. Economic release for the week includes the July Producer Price Index which declined further to -2.2% y/y from -1.8% y/y in June.

US Treasuries (UST) Market

Investors flocked into safe-haven papers following Fed Chairman Powell’s remark reinforcing his pledge that the Fed will continue to take appropriate steps to support the US economy amid signs of a slowdown, while noting “significant risks” from global slowdown and trade uncertainty. Also, China’s announcement of additional tariffs to be imposed on US$75bil worth of American goods and Trump’s announcement of an additional duty on some US$550bil of targeted Chinese goods added to the rush. However, the Treasury pared some gains after China showed its willingness to negotiate calmly. By the end of the week, the UST eased 2bps on average across all spectrum. As at Friday, the 2-, 5-, 10- and 30- year benchmark UST yields stood at 1.52%, 1.40%, 1.51% and 1.97%, respectively.

Malaysian Bond Market

The MGS curve eased 1–6bps save for 10-year tenure which added 0.5bp. Likewise, yields in the GII segment fell 1.7bps on average with the 7-year rising 0.5bp at the end of the week. The buying pressure in the market was driven by: (1) the movement of regional bonds as the UST10Y continued to slide lower; and (2) growing buying interests on the shorter-dated papers as market players were more convinced that there will be a rate cut by BNM in the next MPC meeting. Moreover, the market focused more on the RM3.0bil issuance size of the 10Y GII ‘07/29’s reopening auction which garnered a decent BTC of 2.000x averaging at 3.318% on Thursday. At point of writing, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at 3.13%, 3.29%, 3.26%, 3.31%, 3.50%, 3.57% and 3.78% respectively.

Local govvies activities were reduced by 46% to RM14.1bil from last week’s RM25.9bil. Matching the pace, the MGS papers tumbled 58% w/w to RM7.6bil from RM18.1bil, recording 54% of the total volume traded as compared with 70% in the prior week. Interest in the GII also dropped by 16% to RM6.1bil from RM7.3bil, occupying 44% of the week’s flows. Plus, MTB/MITB traded lower by 24% to RM365mil from RM479mil in the prior week. On another note, the PDS declined 47% w/w to RM2.7bil from RM5.1bil a week earlier. The GG/AAA segment contributed 80% of the secondary market flows while the AA-segment constituted 18% and the A-paper up 2%.

DanaInfra Nasional Bhd 2022–2049 tranches gobbled up RM345mil, trading between 3.278% and 3.890%. Besides, Prasarana Malaysia Bhd 2023–2039 papers gathered RM305mil with yields closing 3.281%–3.740%. These were followed by GovCo Holdings Bhd ‘09/32 IMTN papers which traded between 3.638% and 3.640%, with a volume of RM210mil.

Meanwhile in the AA-segment, Sarawak Energy Bhd 2021–2036 IMTN topped the list with RM438mil changing hands at 3.348%–4.119%. Next, 2024–2026 Bumitama Agri Ltd IMTN papers gathered RM100mil, trading between 3.707% and 3.843%. Last but not least are the 2020–2028 MMC Corporation Bhd tranches which were traded 4.064%–4.869% amounting to RM90mil.

Ringgit Interest Rate Swap (IRS) Market

The IRS was seen easing across the curve with the 5-year falling the most at 7.5bps while the 3-month KLIBOR dropped 2bps to 3.40%. Elsewhere, the 5-year CDS eased 2.2% to 51.92bps.

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