MGS and GII yields mostly increased this week, moving between -1.3 bps to 12.0 bps overall. The 10Y MGS rose by 2.0 bps to 3.723%, whilst the 30Y MGS yield fell by 1.3 bps to 4.136%.
Domestic sovereigns saw pressure this week in the face of higher global bond yields and risk aversion. The 3Y GII reopening auction drew weak demand resulting in a 12.0 bps increase in its yield to 3.461%. Domestic yields may trend slightly higher early next week, as demand for govvies remains tepid, and steered by volatile global bond yields ahead of the US CPI release and the US FOMC meeting (June 13 – 14). That said, demand for bonds could improve if the Fed pauses and indicate a more dovish stance.
Foreign demand for domestic bonds is expected to be subdued in the near term, as global risk aversion remains largely prevalent leading up to the upcoming US FOMC meeting and after the stronger-than-expected US jobs data last week. Domestic sovereigns may also face pressure from broadly lower yields against developed market bonds, with
the 10Y MGS-UST differential narrowing sharply this week (0.5 bps; previous week: 10.8 bps).
