FW: RHB FIC Credit Market Update - 6/5/14

6 May 2014

Credit Market Update

Interest in MGS Outshone Lacklustre Credits; APAC IG Tightened Amid Quiet Secondary Market; UST Yields Climb on Better PMI    

MALAYSIA                      

¨      Local secondary volume tumbled as MGS rallied; continued interest in UEM-Sunrise and Khazanah. Credit flows yesterday plummeted 68% to MYR128m from Friday’s MYR404m amid more interesting movement in the MGS market, particularly the 5y (c.-2bps) and 10y (c.-4bps) rates. Meanwhile, investors continued to eye medium-term papers like Imtiaz II 12/18, which ended 1bp up at 4.55% (since 18-Apr 14) on MYR25m transacted, as well as UEMS 12/18, which ended unchanged at 4.60% on MYR20m transacted, and UEMS 12/17, aligning at 4.46% (6bps tighter since 18-Apr 14) on MYR10m traded. Other stocks that made an appearance were Kesas 10/14, unchanged at 3.65% (since 24-Apr 14) on MYR20m traded; RHB Bank 11/22c17 old-style T2, up 1bp at 4.62% (since 25-Mar 14) on MYR20m traded; and recently-issued (21-Apr 14) DanaInfra 4/24 settling at 4.55% on a MYR10m maiden trade.

REGIONAL

¨      APAC IG credits outperformed, reversing widening since last week. Credit spreads tightened as JACI IG spread narrowed 6bps to 181bps while the HY spread was unchanged at 505bps. Meanwhile, credit protection costs were stable as the iTraxx AxJ held unchanged yesterday, although opened a tad higher this morning by 1bp to 126bps. In the China USD space, we saw more papers traded lower. Nevertheless, outperformers include CHIOLI 11/20 (-22bps to 4.43%) and HUWHY 8/27 (-7bps to 4.38%) while selling was seen on Baidu 18/18 and 11/17 (+10bps to 2.73% and +13bps to 1.99% respectively). In SGD space, activities were seen on new issuances - Gallant Venture 5/17 (at 5.845%, 5.5bps inside issuance level 5.90%) and Rickmers Trust Management 5/17 (at 8.58%, 13bps outside issuance level 8.45%). Meanwhile, UST yields were broadly higher yesterday, retracing the previous day’s movements as PMI numbers were stronger than expected. Going forward, investors may seek for further direction from economic data releases this week – US: Mar trade balance (today), initial jobless claims (8-May); China: PMI numbers (tomorrow), trade numbers (8-May), inflation numbers (9-May); Malaysia: trade numbers (tomorrow), OPR and foreign reserves (8-May).

¨      On the APAC primary front, we noted some activities from Aussie issuers in the USD and AUD space amid a quiet market. Australian maintenance service provider, Transfield Services (Ba2/BB; Sta) is eyeing its bond debut with 5.5NC2016 USD300m senior notes. Pricing is expected mid next week. Meanwhile, Bendigo & Adelaide Bank (A2/A-/A-; Sta) is planning to sell 2.25y senior floaters at BBSW+80bps guidance, expected to be priced by tomorrow.

TRADE IDEA

Bond	CNOOC 3.875 5/22 at 4.02%, z-sprd +160bps (AA-/Aa3)
Comparable	CNOOC 4.25 4/24 at 4.03%, z-sprd +135bps (AA-/Aa3); CNOOC 7.4 5/28 at 4.04%, z-sprd +110bps (AA-/Aa3); SINOPE 5/22 at 3.97%, z-sprd +155bps (A+/Aa3)
Relative Value	We note that a technical switch from a longer-dated CNOOC 7.24 5/28 to its 3.875 5/22 offers an attractive proposition for duration play and z-spread pick up of to c.50bps as we see the massive steepness as unwarranted. Investors could shorten duration by up to 6 years for a similar yield of c.4.02% while having a decent liquidity from its issue size ofUSD1.5bn.

 

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