Investors were on the sideline over the last week as reflected by thin market movement with an average yield pick by only 6bps WoW. The 10y FR0059 settled briefly higher to 7.54% (+9bps WoW) while the 5y stood at 7.13% (-5Bps WoW). Yield curve steepened this week, reflecting market expectation that inflation might pick up this year amidst higher administrated prices. BI hold its 7-day repo rate at 4.75% at yesterday policy meeting, while the deposit and lending rates also were maintained at 4.00% and 5.50% respectively. The BI cited that it remains mindful of the following risks; i) policy directions taken in the US and China, ii) potentially higher global oil price iii) rising domestic inflationary pressure amidst the impact of administered prices adjustment.
Meanwhile, external risks linked to hawkish remarks from Fed chair Janet Yellen and Trump inauguration day. Yellen warned that waiting too long to raise interest rates could invite in the “nasty surprise” of inflation. In her speech, Yellen pointed strongly to the prospect of further interest rate increases this year saying the U.S. “economy is near maximum employment and inflation is moving toward Fed’s goal.