27 January 2017

CIMB FIXED INCOME RESEARCH

DAILY FIXED INCOME COMMENTARY

US Treasuries

Tenure
25-Jan
(Yrs)
(%)
2
1.23
5
1.98
10
2.51
30
3.10
Source: Bloomberg

26-Jan
(%)
1.22
1.97
2.50
3.09

Chg
(bps)
-1
-1
-1
-1

Amid firm demand at the 7-year auction and large fall in new home sales, US Treasuries
closed Thursday with mild gains. The $28 billion auction of the 7-year Treasuries saw a
lower bid-cover of 2.45 times versus 2.51 times average of six 7T auctions since last July,
but there was strong demand from indirect bidders (which include foreign central banks)
as they ended up with 72.8% of the amount sold (64.0% at the 7T auction last month).
High yield at the auction was 2.335% (2.284% at 7T auction last month).
New home sales fell 10.4% mom in Dec (-0.7% consensus). Upcoming data include
4Q2016 GDP (consensus +2.2% annualized) and 4Q2016 core PCE at consensus +1.3%
qoq (+1.7% qoq previous quarter).

Fx Markets

USD/JPY
EUR/USD
USD/MYR
USD/IDR
USD/SGD
USD/THB
Source: Bloomberg

26-Jan
114.29
1.0721
4.4316
13353
1.4211
35.270

27-Jan
114.54
1.0681
4.4280
13339
1.4257
35.320

USD rallied with DXY now up to 100.38 as the greenback rose against the Yen and Euro
especially. EUR was pressured as European bond yields rose with the Italian court ruling
that could pave way for an early election. The ruling allows a clear parliamentary
majority to any party winning 40% of the votes, which means a need for a coalition
government (as Italian parties are mainly small) and lowers chances of a thoroughly
populist coalition government to take control.

Local Currency Bonds

Tenure
(Yrs)
3y MGS
5y MGS
10y MGS
20y MGS
5y MYR IRS
3m KLIBOR
3y THB Gov
5y THB Gov
10y THB Gov
20y THB Gov
5y THB IRS
3y IDR Gov
5y IDR Gov
10y IDR Gov
15y IDR Gov

25-Jan
(%)
3.25
3.63
4.12
4.79
3.80
3.43
1.73
2.25
2.67
3.36
2.22
7.03
7.09
7.54
7.99

26-Jan
(%)
3.27
3.61
4.16
4.70
3.82
3.43
1.73
2.28
2.70
3.39
2.27
7.16
7.19
7.59
8.05

Chg
(bps)
+2
-2
+4
-9
+2
0
0
+3
+3
+3
+5
+13
+10
+5
+6

Source: Bloomberg, ETP, Thai BMA, IBPA,

CIMB estimates

MYR IRS kept rising as it tracked higher UST yields overnight. We think pressure remains
for upwards movement but should be contained in next couple of weeks if as expected
FOMC does note hike rates at upcoming policy meeting. Amid the higher swap rates,
MGS were dealt mixed downplayed by thin liquidity heading towards long CNY break.
Thai bond curve steepened as yield rose 2-3bps along the mid- to long-end tenors
mainly due to net selling pressure by foreign players in the late trading session and
seconded by local selling. Yields were under upward pressure amid strong appetite for
global equity markets and the SET index managed to close higher at 1,591 on Thursday.
Onshore IRS curve also shifted in a bear-steepening move as swap rates for 4 year tenor
and over edged higher 4-8bps.
The auction of 3-year BOT199A amounting to Bt35 billion cleared with long tail at the
bidding range of 1.735%-1.78% and 1.06 times bid-to-cover ratio as rising yield
sentiment prevailed in the market. We expect demand from the interbank segment,
being a major player of BOT199A when yields rise and touches 1.80%.
IDR government bonds were traded down Thursday in line with UST movement (10T
above 2.50%). The market opened unchanged on aggressive bids but some net selling
pressure appeared later in the day. Volume traded increased to IDR12.6 trillion and as
usual was concentrated on bonds maturing over 10 years (41% of flows).
In the IDR corporate bond market, PNM (A) Nov19 and Telkom (AAA) Jun22 saw
heaviest trading interest. Aside, a big chunk of trading volume went to short maturity
and high grade papers. Volume decreased a tad to IDR858 billion.

Please read carefully the important disclosures at the end of this publication.

Asian Dollar Credits

Mala

Issuer
Malay 26
Malay 46
Petrol 26
Petrol 45
Tenaga 26
Cagamas 19
Axiata 4.357% 26
Thai Oil 23
Source: Bloomberg
Issuer
Malaysia
Thailand
Indonesia
Philippines
Source: Bloomberg
g

Asian dollar credits mildly tightened Thursday, days ahead of the Lunar New Year,
boosted by gains in regional stock markets. The iTraxx Asia ex-Japan high grade index
was about 1bp tighter but not including newer bonds which saw mixed performance.
Amongst the newer papers, new Vedanta Jul22 was weaker around 100.125.
Elsewhere, downgraded Reliance 20s fell heavily by about 1.00 point to about 100.19
based on Bloomberg indicative pricing.
Ratings
Moodys
A3
A3
A1
A1
A3
A3
Baa2
Baa1

S&P
AAAABBB+
-BBB
BBB

T-spread

T-spread

T-spread

Vs. UST

Z-spread

25-Jan
97
119
117
132
159
141
175
165

26-Jan
99
116
117
130
159
143
175
165

Change
+2
-3
0
-2
0
+2
0
0

Benchmark
10T
30T
10T
30T
10T
2T
10T
5T

25-Jan
114
161
134
175
172
93
192
149

Ratings
Moodys
A3
Baa1
Baa3
Baa2

S&P
ABBB+
BB+
BBB

25-Jan
128
72
147
98

5-year CDS
26-Jan
127
72
147
97

Chg
-1
0
0
-1

Economic News
China's banks extended a record 12.65 trillion yuan (US$1.84 trillion) of loans in 2016 as the government encouraged more creditfuelled stimulus to meet its economic growth target, despite worries about the risks of an explosive jump in debt. China's top
leaders pledged last month to stem the growth of asset bubbles in 2017 and place greater importance on preventing financial risk,
even as some global financial experts warned the nation's debt load is nearing crisis levels. In December alone, Chinese banks
extended 1.04 trillion yuan in net new yuan loans, far more than economists had expected, central bank data showed on Thursday.
Analysts polled by Reuters had expected new lending would fall to 700 billion yuan from November's 794.6 billion yuan. Reuters
S&P Global Ratings has affirmed the 'AA-' long-term and 'A-1+' short-term sovereign credit ratings on China. The outlook on the
long-term rating remains negative. We also affirmed the 'cnAAA' long-term and 'cnA-1+' short-term Greater China regional scale
ratings on China. Our transfer and convertibility risk assessment on China is 'AA-'. China continues to rely on credit growth and
public investment to sustain high economic growth. Nevertheless, growth of corporate leverage appears to have moderated over
2016 and the authorities have increased policy emphasis on reducing corporate leverage. The government also appears to be more
open to accepting a further slowdown in economic growth. These changes have the potential to lower credit growth in the near
future and reduce the related vulnerabilities to the sovereign ratings. S&P
SINGAPORE'S manufacturing output surged 21.3 per cent year-on-year in December, posting its best monthly performance in at
least two years, data from the Economic Development Board showed on Thursday. This jump was above market expectations. A
Reuters poll put the median forecast at 9.5 per cent year-on-year. Excluding the volatile biomedical sector, output still increased by
16.1 per cent. On a month-on-month basis, manufacturing output expanded 6.4 per cent from an already strong November.
Overall, manufacturing output grew 3.6 per cent in 2016 over 2015. Business Times
LOCAL employment in Singapore grew modestly in 2016, while foreign employment contracted, the Ministry of Manpower said
on Thursday. According to its 'Labour Market Advance Release 2016', total employment in 2016 is estimated to have increased by
16,400 or 0.4 per cent, lower than the 32,300 or 0.9 per cent in 2015. This was the lowest growth since 2003 (-12,900 or -0.6 per
cent). "The moderation in total employment in 2016 took place amid slower growth in the Singapore economy, slowdown in local
labour force growth and continued tightening of the supply of foreign workforce,'' the manpower ministry said. Local employment
increased by an estimated 10,700 (or 0.5 per cent) in 2016. Growth occurred in many services sectors, including community, social
and personal services, professional services and transportation and storage. On the other hand, foreign employment (excluding
foreign domestic workers) contracted in 2016 (-2,500 or -0.2 per cent), the first time since 2009. Business Times
The U.K. economy expanded steadily in the last three months of 2016, preliminary data showed, suggesting Britain was among
the fastest-growing major economies, despite the drama of June's Brexit vote. The strong performance will be welcomed by the
ruling Conservative Party as Prime Minister Theresa May prepares to launch the country's exit from the European Union, with
2

formal divorce talks scheduled to start before the end of March. However, many economists warn a slowdown may occur in 2017,
as consumers rein in spending because of rising inflation. The Office for National Statistics said Thursday in an initial estimate that
gross domestic product expanded by 0.6% on the quarter in the final three months of 2016, equivalent to an annualized rate of
2.4%. This was narrowly above the expectations of analysts polled by The Wall Street Journal, who predicted quarterly growth of
0.5%. MarketWatch
Italy's constitutional court on Wednesday threw out aspects of an electoral law approved by former prime minister Matteo
Renzi but presented a reworked version that can be used immediately, raising the chance of early elections this year. Italy's
largest parties - Renzi's Democratic Party (PD) and the anti-establishment 5-Star Movement - are both calling for a vote by the
summer, about a year ahead of schedule. The system laid out by the court, which only applies to the lower house Chamber of
Deputies, is based on proportional representation and hands a clear parliamentary majority to any party winning 40 percent of the
vote. Both of these aspects were part of Renzi's law, but the court also said the election should be held in just one round,
eliminating the run-off between the two largest parties which Renzi had envisaged if none got 40 percent in the first round. No
opinion polls put any of Italy's plethora of parties anywhere near 40 percent, meaning the new system will probably lead to a
coalition government. Reuters

Corporate News
Tabung Haji records RM1.06b income from O&G investments since 2001
Lembaga Tabung Haji recorded a cumulative RM1.06bil income from all its investments in the oil and gas (O&G) sector since 2001
while short or medium term marked-to-market unrealised losses will not change its investment focus. The pilgrimage fund said on
Thursday many of its investments has been made in strong and performing local Bumiputera owned companies which provided
critical services to the national petroleum companies. This enables Malaysia to reduce its reliance on foreign O&G companies. We
see the sector as an industry of national strategic importance. A short or medium term marked-to-market unrealised losses does
not and will not change our appetite and our commitment in the said sector, it said. Company
Sime plans to split operations
Sime Darby Bhd is planning to split itself three ways, creating pure play listed entities for its plantation and property divisions.
Others, including its BMW distributorship, port operations and trading, will remain under the existing listed entity. Shareholders
would benefit from the growth potential in each of the three iconic stand-alone businesses, Sime Darbys group chief executive
officer and president Tan Sri Mohd Bakke Salleh said in a statement. This initiative will enable each business to pursue its distinct
aspirations with greater focus and agility, taking advantage of potential growth opportunities to maximise value for all
shareholders, he said. Sime Darby, he said, would be evaluating the implementation measures and indicative timelines to give
effect to the decision to split the company. The Star
BNI books 25 percent profit growth in 2016
State-owned lender BNI saw a 25.1 percent increase in net profit last year, compared to the same period in 2015, to Rp 11.34
trillion (US$849.6 million). The increase was supported by a 17.4-percent upsurge in its net interest income (NII) and a 23.1 percent
rise in non-interest income, to Rp 29.99 trillion and Rp 8.59 trillion, respectively. The higher non-interest income is mainly
supported by increases in trade finance, debit card and account management and fees from bancassurance. "The achievements
reflect our improving business management," BNI vice president director Suprajarto told a press briefing in Jakarta on Thursday.
"We have been able to implement a strong business strategy, prudent financing, reliable human resources, better technology and
organization changing." BNI managed to disburse Rp 393.28 trillion of loans last year, up 20.6 percent from the same period last
year. Third-party funds (DPK) grew by 17.6 percent from 2015 to Rp 435.55 trillion last year. Jakarta Post
Keppel Corp's Q4 profit plunges 65% to S$143m
KEPPEL Corporation posted a fourth-quarter net profit of S$143 million, down 65 per cent from a year ago due largely to lower
contributions from and additional provisions for impairment tied to the offshore and marine division. Earnings per share were 7.9
Singapore cents, down from 22.3 Singapore cents. Keppel disclosed additional provisions for impairment during the quarter of
S$313 million mainly arising from the rightsizing of Keppel Offshore & Marine and impairments of investments and work-inprogress. Revenue for the fourth quarter ended Dec 31, 2016, was S$1.94 billion, down 21.8 per cent cent from last year.
Business Times
Marina Bay Sands' Q4 profit up 8% at US$366m
MARINA Bay Sands (MBS) turned in a net profit of US$366 million for the three months ended Dec, 31, 2016, up 8 per cent year on
year, boosted by stronger contributions from its casino, hotel and the mall. Revenue was 2.8 per cent higher at US$723 million, as
its casino business reported a 5.6 per cent rise in revenue to S$563 million. The win percentage for the VIP segment was 2.87 per
cent, which was within the expected range of 2.7-3 per cent. Rolling chip volume was around 18.4 per cent lower at US$8.26 billion.
Business Times
Kia Motors drafts Trump contingency plan
Kia Motors said on Thursday it is drawing up a contingency plan to cope with the policies of US President Donald Trump, reflecting
growing wariness by Asian exporters about the prospect of US protectionism. Trump has promised to revive US industrial jobs by
forcing automakers to stop making cars in Mexico, threatening to tax imports and promising to make it more attractive for
businesses to operate in the United States. South Korea-based Kia Motors last year started production at a new plant in Nuevo
Leon, Mexico, while sister firm Hyundai Motor will begin making cars at Kia's Mexico plant this year. "We acknowledge that there
are a lot of concerns about the uncertainty stemming from the new US administration," Han Chun-soo, Kia's chief financial officer,
3

said during an earnings conference call. "While closely monitoring its policy directions, we are preparing to respond by setting up a
step-by-step, scenario-based contingency plan." Trump has warned German carmakers and Japan's Toyota of a "big border tax" if
they build cars for the US market in Mexico. So far, however, he has not commented on the South Korean carmakers' plans.
Reuters
Proton to announce strategic partner earliest by April: CEO
Proton Holdings Bhd aims to announce its foreign strategic partner in April, or the latest by end-June, its chief executive officer
Datuk Ahmad Fuaad Kenali said. He said currently there are three final shortlisted potential foreign strategic partners that are doing
due diligence process on Proton. "It is a complex transaction for a complex industry and this will surely takes time. "And when they
come out with their proposals later on, we still have to do a lot of clarification, evaluation, and perhaps negotiations," he added.
Bernama
SME Bank first DFI in M'sia, Asean to join The Montreal Group
SME Bank has made history as the first Development Financial Institution (DFI) in Malaysia and Asean to be a member of The
Montreal Group (TMG). TMG is an exclusive global forum for state-owned development banks focused on assisting micro, small and
medium-sized enterprises. Founded in 2012 by seven members with a total estimated combined assets of US$2 trillion, TMG was
established to encourage exchange of ideas, best practices and foster greater understanding of the international market for the
growth of SMEs. NST

CIMB Regional Fixed Income Research Team

Nik A Mukharriz
Mika Martumpal
Wiracha Lorattawut, CFA, CPA

Head, Regional Fixed Income Research

Treasury Research Head, Indonesia
Thailand Analyst

ahmadmukharriz.muhammad@cimb.com
mika.martumpal@cimbniaga.co.id
wiracha.l@cimbthai.com

+60 (3) 2261 8557

+62 (21) 250 5151
+66 (2) 638 8649

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