FW: RHB FIC Credit Market Weekly - 19/9/14

19 September 2014

Credit Market Weekly

Bonds Fell as Fed Signaled Steeper FFTR; Active SGD Primary with FCL and HDB Tap     

                                                 

REGIONAL

¨      Corporate bonds ended lower as Fed signaled steeper rate target. Asian credits fell further during the week as market fear over FOMC’s revised median forecast on the benchmark rate to 1.375%, or 25bps higher than June’s estimate. As a result, both JACI IG and HY fell for two consecutive week by 0.40% and 0.32% respectively. IG yield rose further to 4.137% (+8bps W-o-W) while HY benchmark rose 9.8bps to 7.02% as tightening may cost the weaker non-IG issuers dearly. Sub-flows stay supportive with selective buying across BBB property names in China/HK, while the low-beta focus on SOEs are more within the shorter durations.

  

¨      Quieter primary as issuers on the sideline before FOMC. Most deals were priced after Fed’s meeting, with only USD1.65bn was placed during the week (vs USD5.19bn prior). Korea Western Power (KOWEPO, Aa3/A+/NR) started the week with USD300m 5y at T+92.5 (coupon 2.625%), followed by Indonesia’s property developer – Jababeka’s (NR/B+/B+) USD190m 5NC3 at 7.50%, mainly to refinance its existing debt of USD133.7m. Chong Hing Bank AT1CS (Ba2) was priced at 6.50% with USD300m placed out mostly to Asian investors, while market debutant Honghua Group Lts (B1/NR/BB) – the drilling rig and component provider successfully printed USD200m of 5NC3 at 7.45%. Next in the primary tap would be Hana Bank (Baa2/BBB/NR), Bank of Communications (BOCOM) Tata Communications (NR) and PELINDO (Baa3/BBB-) while Zhejiang Provincial Energy (A1/A) could be well priced its piece before the week end.

    

¨      Busy-week on SGD primary front; swap rates continued rising. SGD swap rates continued on upward momentum (+2bps to +5bps) over the week amid adjustment to the US Fed’s interest rate forecasts (median forecasts for end 2016: from 2.5% to 2.875%). Meanwhile, we saw stronger-than-expected economic data in Singapore this week, such as retails sales (actual: 5.5% vs consensus: 3.5%) and non-oil domestic exports (actual 6.0%; consensus: 2.5%) although effects on the SGD rates were marginal. In the credit space, focus was on primaries as activity rebounded to SGD1.4bn priced (vs 3-week average supply: c.SGD550m). Notable issuances include FCL’s (NR) SGD600m Pnc5 at 4.88%, HDB’s (NR) SGD500m 5y at 2.288%, and China Coal Solution’s (NR) SGD180m 2y at 7.50%. Going forward, we expect the string of Fedspeak next week to be the primary market mover, which should echo Yellen’s view of maintaining interest rates for a considerable time.

MALAYSIA

¨      Quiet secondary market on the back of holiday and MPC; OPR stayed at 3.25%; Bank and power sector led corporate space. Secondary market for MGS and corporate were slower  at MYR3.5bn and MYR982m respectively on the back of shorter trading days as well as direction seeking before the MPC meeting on Thursday (OPR maintained at 3.25%). Yield for 3y, 5y and 10y MGS edged 3.4-7.1bps lower during the week amid the reopening of 30y MGS of MYR2.0bn, priced at 4.715% with total bid-cover of 1.365x. On corporate space, investors were concentrated in bank (30% of total volumes) and power (26%) sector. Newly issued BPMB 9/29 topped the volume chart on MYR140m closing at 4.741% (0.9bps below coupon). Other notable names include TNBWE saw MYR90m end the day in between 4.67%-5.00% (flat to -23bps) for long-dated 1/25-1/30.