The Star: Treasury Pulse

The Star

Global Forex Market

THE US dollar continued its rally, rising 1.1% to 95.3 due to safe haven flows as trade war concerns continued to weigh on investors’ risk appetite after US President Trump announced a clampdown on Chinese investments in US technology firms.

Trump later signalled that he may be less confrontational in curbing Chinese investments, sticking to the existing law to restrict Chinese investments, relieving some concerns over the US-China trade tensions. On the data front, US 1Q18 GDP final estimate recorded a growth of 2.0% y-o-y, slower than its previous estimate of 2.2%.

Brent crude oil surged 3.9% to US$77.68/barrel despite Opec reaching an agreement to boost the oil production target by 1mil barrels/day starting next month as the market felt that Opec members may not meet production target due to capacity limitations. Besides, the outage at a Canadian oil sands upgrader, coupled with the rising tensions in Libya as well as the US pressing the Opec to end Iran imports in November, have further driven the crude oil price higher.

The euro slipped 1.2% to 1.1569 mainly due to the stronger dollar added with political jitters in Germany as the coalition government was divided on the migration issue. However, the euro pared loses following the release of better-than-expected June preliminary inflation data in Germany, Italy and Spain which recorded a growth of 2.1% y-o-y, 1.5% y-o-y and 2.3% y-o-y respectively from 2.2%, 1% and 2.1% in May respectively, suggesting the price pressure in the EU is moving closer towards the ECB’s 2% target.

The pound fell 1.5% to 1.3078 over the week against the stronger greenback after the new Bank of England rate-setter Haskel’s dovish comment on Britain’s readiness for higher interest rates and the uncertainty that Brexit may bring to the country’s economy. Later in the week, the Financial Stability report pointed out a risk that US$38 trillion worth of derivatives could be untradeable after March 2019. The report also raised questions if the UK economy can sustain a disorderly Brexit, further growing the Brexit pressure.

The Japanese yen slipped 0.7% to 110.5 amid Bank of Japan policymakers suggesting that the central bank should “patiently continue” its powerful monetary easing. Later during the week, the demand for yen shrank after Trump eased his stance in restricting Chinese investment.

Over the week, Asian ex-Japan currencies have depreciated against the dollar, triggered largely by the weakening Chinese yuan. The Chinese yuan slid to a 6-month low, dipping 1.3% to 6.627 after China’s central bank loosened its monetary policy by cutting its reserve requirement ratio, which unleashed US$108bil in liquidity. At the same time, weaker sentiment in the local bourse due to growing fears over trade tensions have kept the yuan weak.

Meanwhile, the Indonesia rupiah shed 1.7% to 14,394 due to weaker macro-fundamentals which were unable to bolster the higher Fed rates. The rupiah failed to hold loses ahead of Bank Indonesia’s policy meeting, which is highly anticipated to raise interest rate by 25bps to 5.00%.

The ringgit dropped 0.6% to 4.043 as foreign selling in the local bourse persisted with a net outflow of RM964.96 mil while the KLCI dived 0.7% to 1,665.68. At the same time, the slump in the Chinese yuan has partly led the MYR to slide further.

US Treasuries (UST) Market

The yield curve fell across the curve as concerns over the US-China trade war persisted, boosting demand for the safe haven bonds. However, treasuries rebounded after the US released its final 1Q18 GDP, which recorded a growth of 2% y/y, lower than its previous estimate of 2.2% amid the weakest performance in consumer spending in nearly five years. At Friday’s noon pricing, the 2-, 5- and 10-year benchmark UST yields stood at 2.52%, 2.73%, and 2.85% respectively.

Malaysian Bond Market

After the recent Hari Raya celebrations and school holidays, the local bond market saw an improvement. Flows were healthy on both sides with a tight 2-way price action and healthy volume. The local govvies’ yields fell across the curve with the exception of the 7- and 20-year MGS yields which rose 1bps and 0.5bps to 4.06% and 4.89% respectively. Focus of the week was the RM3.5bil reopening of 15y GII 6/33 tender. The auction closed with a strong BTC of 2.783x and averaging 4.778%.

At Friday’s noon pricing, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at 3.61%, 3.84%, 4.05%, 4.20%, 4.64%, 4.88% and 4.94% respectively.

Trading activities for the benchmark local govvies’ improved from last week with trading volume rising to RM11.6bil for the week from RM6.3bil in the week prior.

Meanwhile, trading activities in the secondary corporate bond market has also picked up as the total trading volume increased to RM1.4bil versus last week’s RM0.5bil. Some 48% of the trading volume was from GG/AAA with 49% from the AA segment and the remaining 3% from the A segment.

In the GG/AAA segment, notable trades included 2020-2047 Prasarana Malaysia Bhd tranches which recorded yields mixed between 4.10% and 5.19%, with a total trading volume of RM145mil. Besides, 2025-2039 DanaInfra Nasional Bhd tranches registered mixed yields between 4.46% and 5.11% with RM115mil changing hands.

Furthermore, interest was seen in 2021-2023 Pengurusan Air SPV Bhd tranches which closed with yields mixed between 4.17% and 4.41% respectively, with RM75mil traded. Meanwhile, 2025-2029 TNB Western Energy Bhd tranches ended with yields mixed between 4.67% and 4.84% with a trading volume totalling RM65mil.

Elsewhere in the AA segment, notable trades were seen in the 2024-2035 Southern Power Generation Sdn Bhd tranches which recorded a trading volume of RM150mil with yields mixed between 4.76% and 5.43%. Besides that, interest was seen in 2028-2034 TRIplc Medical Sdn Bhd tranches posted a trading volume of RM59mil and closed with yields mixed between 4.79% and 5.19%.

Meanwhile, 2025-2029 Samalaju Industrial Port Sdn Bhd tranches, which closed with yields mixed between 4.84% and 5.21%, recorded a total trading volume of RM50mil. Furthermore, 2021-2026 Celcom Networks Sdn Bhd tranches registered yields mixed between 4.67% and 5.03% with RM45mil changing hands.

MYR Interest Rate Swap (IRS) Market

As at Friday’s noon pricing, the 3-month Klibor stood at 3.69%. Elsewhere, the IRS curve moved in tandem with MGS while the five-year CDS inched higher over the week.


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