A broad cooling in the US jobs report offered a much-needed respite to UST. The curve bull-steepened but the overall repricing is not significant, likely requiring more data points to change the narrative.
Maybank Research Pte Ltd said today (May 6) this gives a timely lift to sentiment in some ASEAN local markets.
“This week, we expect BNM to hold rate at 3.00% with Ringgit bonds to likely open firmer as the below consensus US payrolls and wage growth boosted UST,” they said.
Ahead of NFP, there appeared to be already decent interest to buy the dip.
Overall, MGS yields fell 4-6bp WoW across the 3y15y. The DXY index fell 0.9% last week. The pullback in USD strength may continue in the near term, providing tailwind to the Ringgit.
This is a timely lift to local sentiment as duration supply is expected to rise in the coming auctions.
Maybank Research expects the announcement of 20y MGS new issue this week at MYR5b total size: MYR3b auction + MYR2b private placement.
This Thursday, they expect the BNM MPC to maintain the OPR at 3.00% and make no major change to the languages on monetary policy stance.
Domestic interbank liquidity condition had been stable with the 1m and 3m KLIBOR fixings flat at 3.29% and 3.59% since April.
U.S.: The NFP disappointment provided a much-needed respite to UST.
Five consecutive weeks of yield increase was finally halted and the UST curve bull-steepened. 10y UST fell 16bp WoW to 4.51%.
Last Friday’s jobs report suggests a broad cooling in labour market. Nonfarm payroll gains slowed to 175k in April (Mar: 315k), wage growth ticked lower to 0.2% MoM (Mar: 0.3%) and average weekly hours eased to 34.3. Prior month figures were revised down by -22k in total.
Yields repriced lower but only moderately and the futures implied rate still suggest less than 2x25bp cut in 2024. The still relatively hawkish market expectation is understandable as more data points are needed to raise Fed rate cut conviction.
At the FOMC meeting last week, the Fed kept rate unchanged as unanimously expected. QT Taper was announced and will start from June.
The details came in largely within expectations: slightly larger-than-expected reduction in monthly cap for Treasuries to USD25b from USD60b, and no change to the monthly cap on agency MBS at USD35b as expected.
This means a new QT pace of USD60b per month from USD95b previously. But because the runoff in agency MBS has been undershooting target at about USD15b per month, actual monthly QT may total only USD40b.
Another important release last week was the ISM Services PMI, which dropped to 49.4 (Mar: 51.4), the first contraction since Dec 2022, and the employment subindex plunged to 45.9 (Mar: 48.5), contributed by a combination of delayed hiring due to labour market tightness, hiring freeze and reduction in workforce, Maybank Research added.
