Local bond market traded lightly at the start of the week with some players looking to take profit after 3 weeks of rally. Local bond yields initially sold-off pushing the long end of the curve 10-20bps higher as market players withdrew bets on RRR cut. The March consumer price report was lower than estimate at 3.3% Y/y, which brings the CPI average within the 2%-4% target range. Sellers emerged to take advantage of the lower inflation print cutting the rally short. At the week’s close, the 10-yr BVAL benchmark rate rose 22bps to 5.82%, while the 2-year benchmark rate rose 6bps to 5.88%, week-on-week. The yield curve remains inverted but is steeper from the medium to long term.
At week’s close, the 2-, 5- , 10- and 30-yr USTs yields increased by an average of 10bps week-on-week. This was spurred by stronger than expected Chinese manufacturing data, positive news on US-China trade talks, and stronger PMI Europe. Meanwhile, ROP yields tracked movements of USTs as the 2-, 5-, 10- and 25-yr ROPs ended the week higher by an average of 7bps week-on-week.
WHAT WE EXPECT
Expect yields to range at current levels with pockets of profit-taking weighing on the 10-yr bond auction scheduled on 10 April. Indication for the 10-yr issue is 5.80%-5.90%.
UST movements are largely expected to be data-driven over the next week as the US is scheduled to announce non-farm payrolls, the unemployment rate, and inflation numbers for March. Investors will be particularly keen on the payrolls number, with consensus at 177,000 new jobs following a very weak February result. Inflation is expected to increase slightly, but to remain below 2%. 10Y UST yields should hover around the 2.50% area, with near-term support seen at 2.60%. On the ROP side, credit spreads across the yield curve have traded lower compared to recent history, but demand should remain so long as UST yields continue to trade at current levels.