The Daily Update - Gilts Treasuries Malaysia

The ‘neutral hold’ yesterday from the Bank of England shows how fast the economic situation can change. Just four weeks ago the market was pricing in a continuation of tightening with a May 25bps rise priced at around 96% but after disappointing economic data (especially CPI and GDP data) a rise in August is now priced in at a less than 50% chance with some calling for 10-year Gilt yields at 1% by year-end; a fall of 43bps from this morning’s level.

In the US the long-end of the Treasury market also regained some composure after a successful record long bond auction of $17bn with a 2.38x coverage even though the issue came at 0.7bps through the 1pm when issued bid with a 71% buy-side takedown, better than the recent averages. This led to the 5year-30year Treasury curve flattening by a further 4bps to the flattest since August 2007 at 27.7bps and the 2year-10year spread also narrowing in a bull flattening move. Assisted by a weaker CPI inflation report it does look like the curve could continue to flatten with targets of 20bps 5s30s in some market participants sights.

Elsewhere, they say age is but a number and in the case of the new Malaysian prime minister that certainly is the case. At the not inconsiderable age of 92, Mahathir Mohamad has been sworn in as the Asian countries new prime minister after a shock victory in the country's election, ending six decades of control by the ruling coalition. He becomes the world’s oldest leader, and what better way of winning power than to declare a 2 day holiday for the country! These days here in the UK we don’t even get a bank holiday for a royal wedding and let’s not get into St Georges day.

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