Heatmap of Daily Changes

Transcription

1 Victor Yong Global Economics & Markets Research URL: Rates Insights Uncertain Bottom as Opening Yield Spike Pared Down Into the Close. Friday, Heatmap of Daily Changes - Singapore Malaysia Thailand Indonesia China HKD Hong Kong CNH Equity (%).7% -.3%.1% -.1% -.2%.5% USD_Asia FX (%).1%.1%.2%.3%.%.% -.7% Money Markets () Short End IRS () Long End IRS () *Table is read horizontally. Price increase in Green. Price decrease in Red. Color intensity corresponds to rank. Market Summary SORs are implied to fix higher by around 5.9, 2.9 and 1.2 in the 1M, 3M and 6M tenors respectively tonight based on the closing swap levels. UST yield lost -.2 during SG trading hours and extended it's overnight US session which saw yields moving lower. Turning to domestic markets, the performance today was consistent across both markets with yields shifting higher; IRS 1.5 and 2.8. SG curvature performance today saw the 2s1s unchanged at 14.3 in IRS and steeper by 5.2 in. Regional yields today rose in Thailand, China, Hong Kong, fell in Malaysia, Indonesia, and in terms of magnitude of change the largest positive yield change in the tenor was 4.5 recorded by HKD IRS while the day's biggest yield drop was -3.5 which was seen in MYR IRS. Major Indices - SG Hours UST Bunds USD Index (DXY) USD Index (ADXY) Brent Oil Asia ex Japan Equities Open Close Change % -.8% -.16% -.17%

2 2 P a g e Today s Highlights SG IRS daily change vs. 1M SD +1SD -1SD Today Y 5Y 15Y 2Y 3Y SG rates daily changes % IRS past month 3. IRS -1SD Ave +1SD Dec 18-Dec 2-Dec 22-Dec 24-Dec 26-Dec 28-Dec 3-Dec 1-Jan 3-Jan 5-Jan 7-Jan 9-Jan 11-Jan 13-Jan SG vs US (IRS semis) cross market spreads IRS Jan Jan Y 5Y 15Y 2Y 3Y -2 1Y 2Y 3Y 5Y 7Y 15Y 2Y 3Y SORs USD FX swaps firmed today after yesterday's sharp dip. Expectations for depreciation in the next month is low based on prevailing prices in 1M USD risk reversals and the 1M onshore offshore FX swap spread. The 1M vs 3m USD vol spread has also started to decline over the past couple of days though outright levels could stay elevated even after next week's US event risk if investors were quick to flip from sell the fact and back to buying the rumours. Assuming no sharp spikes in currency or US Libor volatility, we expect 3M SOR to fluctuate between.7% and.9% in the 1st quarter followed later by a more sustainable move above 1.% underpinned by US Libor repricing. and IRS Hopes are running high, at least for today, that we've seen the bottom of the corrective phase of the Trump rally. Across the board; UST, S&P and DXY, yields/prices closed off their intraday lows which helped to ease fears that Trump's press conference on Wednesday might have had longer lasting negative impact on risk seeking sentiments. However, we remain cautious in reading too much into 1 day's price action when the positioning data is still showing record levels of short interest in the UST. The tenor clawed back most of their previous day's yield losses at the open as well as narrowing the yield discount to UST (or in the case of IRS adding to the premium) in the process, however the opening adjustments were gradually whittled down as the day progressed. 2D return correlations between SG rates changes to overnight US rates changes are still relatively high in IRS, while the has corrected back towards more normal levels of around.4. short term volatility is tracking a little higher at 8.3% compared to 7.49% for the past 3 months. With US event risk coming up next week, volatility might continue to run higher in the short term. The longer end of the curve, 1s3s, has been displaying tendencies to bull steepen and bear flatten on average. This dynamic in the curve is a reflection of the belly being the main battle ground for position adjustments to directional views on yields and should continue to persist in the absence of near term supply/flow distortions. Prevailing curve level is around average against its 1 year historical range which provides another reason to expect this relationship between outright yield and curvature changes to hold, since correlation breakdowns tend to occur abruptly at the range boundaries.

3 3 P a g e auctions and its surroundings Next Auction: Reopen 2Y (NX91W- 1 June 219) Announcement date: Thursday, 19 Size: T.B.A Auction date: Thursday, 26 Re-tap of June 219 (2Y) in a nutshell Good amount of volume went through the 2 year region of the curve. June 219 had a volatile day like the rest of the curve, yields spiked and waned like the rest of the curve and eventually seeing its yield marginally lower than yesterday's close. This price action in June 19 was also a reflection of the 2Y bondswap spread's ability to widen in contrast to flat or tighter bondswap spreads elsewhere, considering that supply overhang remained in play. Wider 2Y bondswap spread has been a stated bias of ours this week, but we expect upside potential will likely be muted until auction size is revealed next week. June 219 yield: 1.37% June 219 vs 2Y spread: 22.5 June 219 vs 2Y UST spread: 2 June 219 vs 2Y SG IRS spread: 22 Daily Change: -.5 Daily Change: +.5 Daily Change: -3 Daily Change: +2 Size observations * Outstanding issuance size of NX91W is 6.4bio. This compares to 6.8bio of stock in the existing on the run 2Y benchmark (September 218). Prevailing stock levels appear adequate given that neither of the bonds have displayed tendency for trading special (i.e. price richness) over the past month. * Average 2Y auction size over the past 2 years has been about 2.4bio, omitting the mini auction re-tap in 215. The average bid to cover over the same period has also been fairly robust at 1.97 times. * The first auction of the new year looks likely to establish a new high water mark for outstanding issuance size, currently at 8bio held by the Jun 221 bond, considering that 2Y auction sizes below 1.6bio has not been seen since 28. Yield observations * The top side of June 219 yield range over the past month is 1.62%, which is a level that will have mostly priced in expectations for 2 to 3 FED hikes in 217. * 2Y yield has been positively correlated to both 2Y UST yield and USD spot FX due to upgraded expectations for FED hikes. * Risk of negative feedback loop between yield and USD spot FX has eased slightly with their correlation stabilizing despite the USD spot FX continuing to push new highs. A yield spike/currency depreciation scenario cannot be dismissed at the moment especially when regional currencies are also pressured by a dominant strong USD narrative. Key notes on 217 cash flows * March/September are chunky coupon months for with 646.1mio to be distributed. * February/May/August/November are dry months for coupons. * No new coupons will be added to dry months in 217. * Maturities for 217 total 1bio due in April ( 7.5bio) and October ( 2.5bio).

4 4 P a g e Rates Strategy Inception Date Currency Type Format Entry Stop Target Rationale at inception Tuesday, 1 Widener outperform Steepener Steepener pay IRS, long benchmark short UST vs long 5s1s SG IRS 2F1Y vs 1F1Y SG IRS The Bondswap spread has erased the majority of its post US election gains. Further downside is limited. Even though there is a auction at the end of February the March 227 bond will be re-opened instead of the current benchmark June 226. Therefore supply overhang effect may be less of a drag to wider Bondswap spread. Arguments for higher yields into 217 are predominantly US centric. This being the case and in combination with our macro team s lukewarm but not recessionary growth outlook for Singapore, conditions are supportive of a lower beta SG rates market response to US rates changes on average in 217. Therefore we expect to see UST spread moving further into positive territory over the course of 217. Trumpflation is expected to have negative implications on US deficit, which will drive a greater appreciation of duration risk and richer term premiums. For 217 we expect to see the term premium repriced to a higher equilibrium level. From a SG rates market perspective, a steeper 5s1s IRS curve will be justified in the above scenario at least until the FED demonstrates a significantly more hawkish stance. Anticipated fiscal policy boost will contribute towards making the long espoused FED rate normalization a more credible objective in 217. Rate hike expectations will likely shift in favour of a steeper rate hike trajectory when the new Trump administration announces their policy details. We expect to see the follow through repricing having a greater impact on the curve beyond 218 since it is assumed that the FED will remain conservative and data dependent. The 2 year forward 1Y SG IRS will outpace the 1 year forward 1Y SG IRS when the aforementioned repricing in FED rate hike expectations takes place in 217.

5 5 P a g e Rates Benchmarks - SG Session Change () Country Benchmark Open High Low Close 1D 1M 1Y IRS US UST s1s UST SG MY TH ID CH HK IRS s1s IRS IRS MGS s1s IRS IRS THB Bond s1s IRS IDR Bond s1s Bond IRS - 7D repos CNY Bond s1s IRS IRS HKD Bond s1s IRS Y CNH CCS Disclaimer: This analysis is based on information available to the public. Although the information contained herein is believed to be reliable, UOB Group makes no representation as to the accuracy or completeness. Also, opinions and predictions contained herein reflect our opinion as of date of the analysis and are subject to change without notice. UOB Group may have positions in, and may effect transactions in, currencies and financial products mentioned herein. Prior to entering into any proposed transaction, without reliance upon UOB Group or its affiliates, the reader should determine, the economic risks and merits, as well as the legal, tax and accounting characterizations and consequences, of the transaction and that the reader is able to assume these risks. This document and its contents are proprietary information and products of UOB Group and may not be reproduced or otherwise. Singapore Company Reg No Z