Trade: MYR 2s5s Steepener
3m Carry/Roll: -0.3 bp
-November last year's shock of 7bp flattening on BNM's change of stance on policy unlikely to re-occur with 9x12 KLIBOR almost fully pricing another 25bp hike by this year end which is fair, and given that overnight rates are only 25 bp away from cycle high of 3.50% in 2008, unlikely to see further shock in front-end.
-Headline inflation settling around 3.5% (target of 3-4%) also likely to keep BNM in watch and see mode, as headline hasn't sustained above 4% since GFC. Core will be expected to pick-up amid growth, but with it quite muted suggesting non-broad price pressures - could keep BNM pricing capped to 1 hike for this year.
-Pressure on further selloff in MYR rates likely to be skewed towards belly and further out in backdrop of global long-end selloff.
-MYR curve reasonably flat vs peers, unchanged since Dec, showing decent relative value in steepeners.
Visualized as index vs MYR 2s5s
Core still not suggesting that price pressures may not be too hot yet
MYR 2s5s curve history shows 10 bp decent level to put on steepeners
Trade idea: Pay EUR 1y1y vs Rec CHF 1y1y
Last: 32.6 bp
Rolls to: 39.7 bp (+7.1bp)
Trade expresses view that ECB continues to take lead vs SNB in policy normalization, where potential for EUR front-end to selloff is increased after Draghi's no-mention of EUR strength, and timeline of taper to be revealed by H2 . Draghi has mentioned that rate hikes are out of the picture until QE ends, however, front-end remains relatively benign with only one hike fully priced by June 2019. SNB remains to comment on CHF overvaluation, and does not see a hike until Q4 2019 (markets price in a 25bp SNB hike by June 2019), and SNB only sees inflation moving to 2% in Q3 in 2020. Upside in steepener trades like reds/greens are likely to be at extended levels, and with the EUR belly steep as it is, further sit seems that selloff is likely to be more concentrated on the front-end of the rates curve going forward. Fact that trade rolls +ve suggests more risk premium is priced for CHF than EUR which is unlikely to continue.
Spread has value near historical levels of 25bp and has +ve roll to cushion if the spread does go slightly lower from current levels.