FUND COMMENTARY
MARCH 2012
Fixed Income Market Review & Outlook
REVIEW
BNM left the OPR unchanged at 3.0% on 9 March.
Inflationary pressures remain benign as headline inflation moderated further from 2.7%yoy in January to
2.2%yoy in February.
Sovereign bond auctions in the month:
1.
RM3.0bn New 15-year MGS averaged 3.892% at a bid-to-cover ratio of 1.65x
2.
RM4.5bn New 7.5 year MGII averaged 3.704% at a bid-to-cover ratio of 2.04x
The month of March saw the sovereign yield curves steepen:
BENCHMARK
31/12/2011
Yield
29/02/2012
Yield
Closing Yield
MOM
Change
YTD Change
3-year MGS
2.98%
2.93%
3.10
+17bps
+12bps
5-year MGS
3.22%
3.20%
3.28
+8bps
+6bps
10-year MGS
3.69%
3.45%
3.66
+21bps
-3bps
MGS Yield Curve
4.20
30/03/2012
29/02/2012
30/12/2011
4.00
Yields
3.80
3.60
3.40
3.20
3.00
2.80
3Y
5Y
10Y
Trading in corporate bonds remains largely in selected quasi-government, AAA and AA bonds.
OUTLOOK
In the MPC meeting on 9 March, BNM decided to maintain the OPR at 3.0%. This is the 6 th consecutive
meeting since May 2011 that BNM has held the OPR at 3%. BNM noted some improvements in global
economic and financial conditions whilst the downside risks to global economy remain.
While headline inflation is expected to moderate in 2012, BNM cautioned against inflation risks due to
the high global commodity prices. With this, we are of the view that the OPR could be unchanged in
2012 but noted that BNM has not completely ruled out easing steps as downside risks to global
economy remain
The Ringgit has been volatile in recent weeks due to increasing risk aversion, and this is expected to
prevail in the near term.
Supply and activity in corporate bonds is expected to pick up as Issuers take advantage of the low
interest rate levels to raise funding.
The bond market continues to be supported by ample domestic liquidity and an improving credit
environment.
FUND COMMENTARY
MARCH 2012
Fixed Income Market Review & Outlook
Table 1: Indicative Rates
MBB O/N
Bank Islam O/N*
MBB 1-Week
MBB 1-Mth FD
MBB 1-Year FD
31-Mar-12
1.70%
2.50%
1.80%
2.80%
2.95%
1-mth BNM MN
3-mth BNM MN
3-mth KLIBOR
3.03%
3.04%
3.19%
CP
1-mth (P1)
3-mth (P1)
* Over the counter rate
Source: Bloomberg/ Bondstream/ Banks
Table 2: Indicative Bond Yields (%)
3yr
5yr
MGS
3.21
3.35
GII
3.26
3.37
Swap rate*
3.39
3.64
AAA
3.72
3.96
AA1
3.89
4.14
AA2
4.06
4.33
AA3
4.22
4.51
A1
6.11
6.64
A2
7.13
7.69
A3
8.12
8.71
Source : Bloomberg/Bondstream
7yr
3.57
3.65
3.85
4.17
4.37
4.58
4.78
7.15
8.24
9.31
3.30%
n/a
10yr
3.64
3.84
4.04
4.37
4.63
4.89
5.12
7.80
8.94
10.08
15yr
3.92
4.12
4.50
4.72
5.03
5.34
5.64
8.54
9.73
10.95
FUND COMMENTARY
MARCH 2012
Fixed Income Market Review & Outlook
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