Thursday, July 20, 2017

General USD weakness saw UST continue to ease overnight by another 4 bps. While the MYR halted its gains today and traded sideways, bond

Today’s trade recap by our trading desk:-

·         General USD weakness saw UST continue to ease overnight by another 4 bps. While the MYR halted its gains today and traded sideways, bond prices continue to firm up by another 2 bps at the belly on thin traded volume. Market players staying on the sidelines ahead of ECB rate decision and statement tomorrow evening.

Malaysia Government Bonds Benchmark Issues
MGS
Closing Level (%)
Change (bp)
Volume (RM m)
3-yr
3.410
-
29
5-yr
3.690
-2.5
9
7-yr
3.895
-2.0
11
10-yr
3.960
-1.5
4
15-yr
4.405
-0.5
-
20-yr
4.570
-
30
30-yr
4.800
-
-
Source: BondStream, AmBank
Interest Rate Swap Closing Rates
IRS
Closing Yield (%)
Change (bp)
1-yr
3.495
0.0
3-yr
3.625
-0.5
5-yr
3.755
0.5
7-yr
3.850
0.0
10-yr
4.000
-0.5
Source: Bloomberg, AmBank

US Treasury yields inched up across the curve on Wednesday, alongside the upticks in crude oil prices but the yields remained under pressure after the recent downtrend. However, bond market appeared to be directionless during mid-week and consolidating ahead of ECB as well as BoJ meetings.

Market Roundup
  • US Treasury yields inched up across the curve on Wednesday, alongside the upticks in crude oil prices but the yields remained under pressure after the recent downtrend. However, bond market appeared to be directionless during mid-week and consolidating ahead of ECB as well as BoJ meetings.
  • Malaysia: MYR denominated government bonds closed on firmer footing, tracking gains in global bond markets driven, amongst others, by weaker-than-expected UK CPI data release. On top of that, MYR govvies were also supported by softer Malaysia’s Jun inflation number, which eased to +3.6% yoy from +3.9% yoy a month ago, and below consensus +3.9% yoy. Elsewhere, USD/MYR was flat and settled at 4.2865.
  • Thailand: Thai bonds closed mixed with THB holding steady after a week-long rally. However, sentiment was guarded ahead of exports data due today. Custom exports are anticipated to rise a smaller 7.85% yoy in Jun against +13.20% in May.
  • Indonesia: IndoGB yield curve fell on Wednesday, in line with lower yield on US Treasury to sub-2.30% (2.27%). Both onshore and offshore buyers were bidding quite aggressively on 15- to 20-year buckets, while offshore banks chased bonds and bills tenors up to 12 months. After a flurry of buying action, market felt steadier at current levels until close. Market was dominated by bonds maturing within a year (28%) and bonds maturing in over 10 years (44%).

Overnight sentiment was buoyant, shrugging off Trump’s threat of imposing steel import tariffs and apparent





Global Markets Daily
by Saktiandi Supaat


FX Research





Overnight sentiment was buoyant, shrugging off Trump’s threat of imposing steel import tariffs and apparent disagreements on how to improve the US’ trade imbalance with China. There were quite a few comments from the POTUS including some “conflicts in the Special Counsel Mueller office”. With markets increasingly conditioned to his rants, USD and the USTs were hardly moved overnight. Eyes are on the bigger events – ECB, BOJ and BI meeting today...

Wednesday, July 12, 2017

RAM Ratings has reaffirmed the AA1/Stable/P1 ratings of Sabah Credit Corporation's (SCC or the Corporation) outstanding sukuk instruments. SCC is wholly owned by the State Government of Sabah, and operates under the purview of the Sabah State Ministry of Finance. The ratings mainly reflect our expectation

Published on 11 Jul 2017.

RAM Ratings has reaffirmed the AA1/Stable/P1 ratings of Sabah Credit Corporation's (SCC or the Corporation) outstanding sukuk instruments. SCC is wholly owned by the State Government of Sabah, and operates under the purview of the Sabah State Ministry of Finance.
The ratings mainly reflect our expectation of continued support from the State Government. This has been clearly demonstrated through the subordination of SCC's loans from the State Government to its debt securities, the conversion of such loans into share capital, the reinvestment of dividends and the extension of letters of support for the Corporation's debt securities.
Personal-financing facilities remained SCC’s mainstay (97% of its financing) as at end-December 2016. Almost all of these facilities, which are primarily extended to civil servants, are repaid via direct salary deductions, thereby containing the Corporation's credit risk. Meanwhile, SCC's residential property, project loans, and hire-purchase segments continued to contract as the Corporation wound down these legacy exposures. SCC expanded at a faster 13.5% in fiscal 2016. The salary increments for civil servants in July 2016 had boosted demand for personal-financing facilities. The Corporation expects financing growth to be equally robust in fiscal 2017, as it anticipates handouts and/or further salary increases ahead of the upcoming elections. 
As at end-December 2016, SCC's gross impaired financing (GIF) ratio eased to 3.0% (end-December 2015: 3.3%) amid healthy financing growth and write-offs. However, its credit cost ratio remained lofty at 1%; the Corporation incurred higher provisions in fiscal 2016 as the mass lay-offs at a major airline had given rise to impairments. Correspondingly, the Corporation’s GIF coverage ratio had improved to 98% as at end-December 2016.
In January 2016, SCC adopted FRS139 as its profit-recognition method for personal-financing facilities which had led to the redistribution of SCC’s financing profit, thus smoothening its profit stream over the tenure of the financing. The adoption of FRS139 had a one-off negative impact of RM20 million on financing income in fiscal 2015 which thinned its net financing margin (NFM) to 4.6% (fiscal 2014: 5.6%). SCC closed fiscal 2016 with a still-healthy NFM and ROA of 4.6% and 2.3%, respectively. 
As at end-December 2016, short-term market-based borrowings comprised a higher 44% of total borrowings (end-December 2015: 32%) and could expose it to refinancing and liquidity risks. However, we anticipate ready funding and liquidity support from the State Government, if needed. Separately, we expect SCC's gearing ratio to remain manageable. 

Analytical contact
Chan Yin Huei
(603) 7628 1180
yinhuei@ram.com.my
Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my
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