RISING fears of the coronavirus spread and its potential economic impact unleashed one of the most violent sell-offs in history across global asset markets.
Brent crude oil dropped sharply by 15.89% to US$28.47 per barrel affected by the acceleration of coronavirus cases worldwide; a prolonged crude oil price war; and countries’ movement control and lockdowns during the pandemic, which are the main reasons of the mismatch between supply and demand. The EIA crude oil inventories for the week ending March 13 that came lower than expected at two million barrels (cons: 3.3 million) could not offset the worsening global situation.
The euro plunged 3.74% to 1.065 largely due to the strong demand for the dollar. As a result of the violent sell-off in the financial markets, the European Central Bank (ECB) launched the Pandemic Emergency Purchase Programme that will deploy €750bil (US$819bil) for securities purchase to help support the economy. Purchases will be conducted until the end of 2020 and include a variety of assets, including government debt. On the data front, the EU ZEW Economic Sentiment Index plunged to -49.5 in March – the lowest since December 2011 from +10.4 in February.
The pound witnessed a substantial sell-off, closing lower by 6.46% to 1.149 – the lowest level in 35 years. The historic plunge was driven by mounting concerns about the economy amid the rising coronavirus outbreak and as investors flock towards the dollar. Despite Chancellor Rishi Sunak unveiling an unprecedented £350bil emergency rescue package to support the UK economy, the scramble for the dollar continued to offset any positive development in the economy. Besides, the Bank of England (BoE) scheduled another emergency meeting this week and unanimously voted to cut rates by 15bps to 0.10% and increase the BoE’s bond-buying programme to £645bil, up £200bil.
The Japanese yen declined 2.87% to 110.7 as the strong demand for dollar outweighed the yen’s safe-haven status. The Bank of Japan (BoJ) also scheduled an emergency meeting post-Fed rate cut, pledging to raise the ETF annual purchase target by doubling to 12 trillion yen (US$112bil); and introducing a new lending programme that is likely to last until September. However, the BoJ maintained its key policy rate at -0.10%.
The majority of Asia ex-Japan currencies witnessed a strong sell-off against the dollar. The worst performer was the Indonesian rupiah that plummeted 7.68% to 15,913 albeit Bank Indonesia announcing a reduction in its policy rate by 25bps to 3.75%. It was followed by the South Korean won that was down by 5.44% to 1,286. Ever since the outbreak, South Korea has recorded more than 8,000 cases with 84 deaths. Meanwhile, the top gainer for the week was the Hong Kong dollar that was up by 0.15% to 7.761.
The Philippine peso came in second, appreciating 0.07% to 51.1 following the Central Bank of Philippines’ decision to lower rates by 50bps to 3.25%.
The ringgit depreciated by 3.18% to 4.414 owing to tight dollar liquidity, weak crude oil prices and persistent foreign selling. The FBM KLCI dived 9.30% to 1,220 – marking a 10-year low, while foreign selling this week surged by RM1.5bil.
The local scene is rather subdued with fewer economic activities following Prime Minister Tan Sri Muhyiddin Yassin’s declaration of a movement control order (MCO) nationwide for 14 days, effective March 18–31.
US Treasuries (UST) market THE issue of liquidity and other market technicalities tore the US Treasury (UST) bond market.
The UST yields rose 9–19bps on the front-end of the curve while the back-end rose 43–50bps. The closely watched UST 10-year jumped a whopping 42.2bps to 1.14%.
Despite risky assets declining sharply, the rise in UST yields suggests investors were forced to take profit in liquid assets such as the UST papers and gold to cover losses from their risky assets exposure.
Underpinned by the stressed market environment, the Fed took a series of actions to ease the strain in the financial market which include cutting its policy rates by 100bps to 0.00%–0.25% and restarting its quantitative easing programme; restarting a commercial paper funding facility for US corporates; and allowing banks and broker-dealers that trade directly with the Fed to borrow cash secured against some stocks and higher-rated bonds.
As at Friday, the two-, five-, 10- and 30-year benchmark UST yields stood at 0.45%, 0.69%, 1.14% and 1.78%, respectively.
The Malaysian bond marketAMIDST chaotic global markets, local bonds were caught in a bloodbath as foreign accounts continued the heavy selling at the front-end of the curve, rising between 51–62bps.
Likewise, the longer-end tenures suffered when bond sell-offs eventually caused the yields to add 43–63bps while the 10-year Malaysian Government Securities (MGS) ended the week at 3.570%, which was 43bps higher. The GII segment was hit the most, rising 55.2bps on average with the five-year tenure adding an extreme 73bps to 3.600%. As a result of the tightening financial conditions, Bank Negara delivered a 100-bps cut on its statutory reserve requirement or SRR ratio while enabling principal dealers to recognize up to RM1bil of government bonds as part of the SRR compliance in a span of one year.
These measures would potentially release liquidity of approximately RM30bil into the banking system. At the point of writing, the three-, five-, seven-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at 3.30%, 3.48%, 3.55%, 3.54%, 3.82%, 4.05% and 4.33%, respectively.
The Markit iBoxx ABF Malaysia Bond Index, an index comprising MGS, GII and GG, returned -4.659% in the week from March 12–19, as the index yield leapt to 3.66%. The ABF Malaysia Bond Index Fund, an ETF which tracks the index, returned -4.618% as its yield jumped to 3.66%. Month to date, the index returned -4.985% while the fund returned -4.944%.
Trading volume in the secondary local govvies segment shot up 9% week-on-week (w/w) to RM31.4bil from last week’s RM29.9bil.
The MGS segments rose 30% w/w to RM23.9bil from RM18.3bil in the previous week while the GII shrank by a portion at 30% to RM7.4bil from RM10.6bil.
In the GG/AAA segment, DanaInfra Nasional Bhd 2029–2043 IMTNs dominated the list with a total of RM230mil, trading between 3.248% and 4.139%. These were followed by Prasarana Malaysia Bhd 2029–2040 tranches, which accumulated RM225mil at 3.244%–4.009%.
Meanwhile, in the AA segment, RHB Bank Bhd’s 09/27 paper gobbled up RM120mil, changing hands at 3.599%. Next, Tanjung Bin Power Sdn Bhd’s 08/20 IMTNs gathered RM50mil, trading between 2.968% and 2.979%.
The ringgit interest rate swap (IRS) marketTHE IRS was seen climbing four bps to 28bps across the curve, save for the first-year IRS that eased three bps. The three-month Klibor fell one bps to 2.79%. Elsewhere, the five-year CDS rose 24.9% to 181.99bps.
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