Treasury Pulse


  • Business
  • Saturday, 28 Mar 2020

Global Forex Market

The US dollar declined for four consecutive days, depreciating sharply by 3.37% to 99.352 largely after the Federal Reserve announced an open ended and unlimited quantitative easing (QE) in an attempt to support markets.

The package included several unprecedented steps for the Fed, including intervention in the corporate bond market, purchases of commercial asset-backed mortgages and exchange-traded funds.

These measures aim not only to support the real economy but also critical market functioning.

Besides, the dollar was also weakened after the US Senate unanimously passed a US$2 trillion emergency relief bill that attempts to arrest the financial havoc caused by the coronavirus pandemic.

The legislation will provide one-off cash transfers to selected Americans based on their income bracket. Apart from that, this week’s key data release shows evidence of the impact from the coronavirus outbreak including: (i) initial jobless claim data which tracks the number of American filing for unemployment surging to a record high of 3.283 million in the week ending March 21 compared to 283k in the week prior; (ii) March Flash Markit Services PMI plummeting to 39.1 from 49.4 in February – marking the lowest level since the last recession (cons: 42); and (iii) March Flash Markit Manufacturing PMI edging down to 49.2 from 50.7 in February (cons: 42.8).

Brent crude oil declined by 2.37% to US$26.34/bbl underpinned by the shrinking demand as lockdowns in many countries took place.

According to the EIA, crude oil inventories added 1.6 million barrels for week ending March 20, relatively smaller than the expected 2.8 million.

The euro recorded strong gains, up 3.22% to 1.103 owing to a weaker dollar. In addition, the euro also receive additional catalysts following headlines after Germany - the largest economy in the bloc - announced a stimulus package worth over US$810bil. However, on the data front, March EU Flash Markit Composite PMI data has plummeted to an all-time low of 31.4 from 51.6 in February (cons: 38.8) due to the Covid-19 impact.

The pound rallied 4.94% to 1.220 after demand for the dollar abated following the Bank of England’s decision to keep its policy rates unchanged at 0.10%, which also fell in line with market expectations.

Nevertheless, the UK government announced a full lockdown effective March 23 in an attempt to contain the spiralling number of coronavirus cases.

On the data front, the March Markit/CIPS Flash Composite PMI tumbled to an all-time low of 37.1 from 53.0 in February.

The Japanese yen strengthened by 1.22% to 109.6 against the weaker greenback.

According to the latest monetary policy meeting minutes, BoJ policymakers have highlighted concerns about an impending stagnation in the Japanese economy due to the coronavirus pandemic. On the data front, the March Jibun Bank Composite PMI est. dropped to a record low of 35.8 from 47.0 in February.

The majority of Asia ex-Japan currencies appreciated against the dollar save for the rupiah (-2.16% to 16,305), peso (-0.44% to 51.103), and Taiwanese dollar (-0.15% to 30.284).

Meanwhile, the Singapore dollar rallied by 1.34% to 1.431, followed by the Korean won, which was up 0.99% to 1,233, the yuan appreciated by 0.33% to 7.0727 and the baht rose 0.12% to 32.651.

The ringgit came in as the outperformer in the Asian region, strengthening by 1.44% to 4.331 due to the weaker dollar.

The FBM KLCI soared 1.90% to 1,346 while foreign selling recorded RM0.5mil this week. On the data front, consumer inflation in February slowed down to 1.3% y-o-y from 1.6% y-o-y in January (cons: 1.4% y-o-y). As the country completes the first week of movement control order (MCO), Prime Minister Tan Sri Muhyiddin Yassin declared the that MCO will be extended until 14 April 2020 following the recent surge in Covid-19 confirmed cases. At the time of writing, the MYR has climnbed by 1.7% to the 4.27 levels.

US Treasuries (UST) Market

The US Treasuries rose six–11 bps from the belly to the back end of the curve save for the 2-year tenure that eased 1.96 bps. Meanwhile, the closely watched 10Y rose 5.84 bps to 0.845%.

The gradual build-up in risk appetite came after the Fed announced an open-ended and unlimited quantitative easing (QE) in an attempt to support markets.

The package included several unprecedented steps for the Fed, including intervention in the corporate bond market, purchases of commercial asset-backed mortgages and exchange-traded funds.

These measure aims not only to support the real economy but also critical market functioning.

Besides, risk sentiment was further supported after the US Senate unanimously passed a US$2 trillion emergency relief bill that attempts to arrest the financial havoc caused by the coronavirus pandemic.

However, UST yields eased slightly towards the end of the week after initial jobless claim data, which tracks the number of American filing for unemployment, surged to a record high of 3.283 million in the week ending March 21.

As at Friday, the 2-, 5-, 10- and 30-year benchmark UST yields stood at 0.28%, 0.49%, 0.81% and 1.40%, respectively.

Malaysian Bond Market

The MGS curve bull-steepened with the front end of the curve rallying by 31-41 bps while the back end the curve eased six to 11 bps. The closely watched 10-year MGS yields eased 11.5 bps to 3.48%.

Amidst thin liquidity, buying momentum in the local bond market emerged after Bank Negara announced a loan repayment moratorium as well as lowering some liquidity buffers for banks.

This was well received by the market as liquidity pressure eases.

At the point of writing, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at 2.93%, 3.12%, 3.46%, 3.48%, 3.88%, 4.11% and 4.25% respectively.

Activities in the secondary local govvies segment declined 47% w/w to RM19.1bil from last week’s RM35.8bil. The MGS segments fell 56% w/w to RM11.9bil from RM27.3bil in the previous week. The GII slipped by a portion at 16% to RM6.9bil from RM8.3bil.

In the GG/AAA segment, DanaInfra Nasional Bhd 2025–2048 IMTNs dominated the list with a total of RM185mil, trading between 3.761% and 4.689%.

These were followed by Tenaga Nasional Bhd 2032–2048 tranches which accumulated RM114mil at 4.010%-4.444%.

Meanwhile in the AA segment, YTL Power International Bhd 2027–2024 tranches gobbled up RM108mil, changing hands at 4.298%–4.882%. Next, Kuala Lumpur Kepong Bhd ‘09/22 and ‘09/34 IMTNs gathered RM70mil, trading at 3.607% and 4.399%, respectively.

MYR Interest Rate Swap (IRS) Market

The IRS was seen easing 1.1bps averagely across the curve. The 3-month KLIBOR rose one bps to 2.80%.

Elsewhere, the five-year CDS slipped 35.6% to 113 bps.

For enquiries, please contact: ambank-fx-research@ambankgroup.com or bond-research@ambankgroup.com

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