FW: RHB FIC Credit Market Weekly - 31/10/14

31 October 2014

Credit Market Weekly

HY Outperforms with China Credits Benefitting Post-Chaori Bailout

                                                                       

REGIONAL

¨      Risk-on appetite continued post FOMC; HY spreads outperformed. Selling pressure built up primarily on FOMC meeting this week, which turned out to be relatively hawkish. Yields rose as investors took into account the confirmation of QE end and possible rate hike in 2015. Asian USD credit papers saw yields rising along the short- to mid-end, such as CNOOC 15, CITPAC 20, NOBLSP 15 and CAPITA 18. We noted interest on the HY space by yield hunters as investors’ sentiment was lifted by the Chinese Government’s efforts to prevent non-payment on public bonds. Shanghai Chaori Solar Energy Science & Technology has obtained funds from state-backed asset manager earlier this month to repay investors without any haircut. JACI HY spread outperformed, closing 6bps tighter (510bps) while IG space narrowed 2bps (184bps). Meanwhile, credit protection costs lowered as iTraxx AxJ compressed 5bps to 113bps. Going forward, investors may see mixed econ data from US with potentially weaker personal spending, manufacturing and NFP; moderated by potential improvements in trade deficit and ADP employment change. In the CN space, yieldy papers may continue to attract investors, with manufacturing releases next week which are likely to stay flattish.

¨      Chinese issuers remain active on USD primary front. On the supply front, we saw c.USD6bn worth of new issuances this week (4-week average: c.USD3bn), led by HUWHY's (A3/A-/A-) USD2bn 3y at T+88bps and USD1.5bn 10y at T+135bps. Other notable new prints include New World China Land's (NR) USD900m 5y at 5.45% as well as King Power Capital's (Baa3/BBB/NR) USD700m 10y at T+345bps and USD300m 5y at T+240bps.

¨      SGD primaries pick-up; Secondary belly-preference post FOMC-statement. SGD primaries picked up this week to SGD575m (previous week: SGD80m), especially post the FOMC statement release on Thursday. We saw bigger prints coming from Grand China Air (NR) with a SGD250m 3y at a final price of 6%, Tata International (NR) with a SGD150m Pnc5 at final number 6.65% and Cambridge Industrial Trust (NR) issued a SGD100m 4y at 3.5%. Mini-prints this week were observed from Oxley Hldg (NR) with a SGD75m 2y at 5.15% and Mapletree Commercial Trust (Baa2/-/-) with SGD50m at a final price of 2.65%. In the secondary market, there was a preference for belly papers in the latter part of the week emanating from the less-dovish than expected FOMC statement. Notably, we observed selling in SPSP papers over the week as Singapore announced that commercial users will have the option to buy electricity directly from retailers instead of via SP Services.

¨      SOR widened; Lighter flows before FOMC statement. The 3y and 5y SOR broadened by c.5-6bps to 1.08% and 1.66% respectively while the 3y/5y was marginally unchanged. This mirrored similar movements in similar duration Treasuries which rose by 7-8bps. SGD credit flows echoed global fund flows which treaded lightly up to the release of the FOMC statement on Wed. Key data releases next week from Singapore include the Oct Purchasing Managers Index (previous: 50.5) to be released on 4-Nov.

MALAYSIA

¨      MGS curve steepened during the week; quiet primary lifted secondary interest. MGS-curve steepened as the 10y/3y MGS spread rose to 38bps as 3y and 10y-MGS moved on the opposite direction. We saw 3y-MGS inched 1.4bps lower at 3.467% while yield for 10y-MGS climbed 3.6bps to 3.844%. 5y and 7y-MGS ended flat at 3.632% (+0.4bps) and 3.776% (+0.5bps) respectively. Overall activity were strong on the local govies with a total of MYR11.47bn exchanged hands (daily average of MYR2.29bn vs YTD daily average of MYR1.35bn). Meanwhile, reopening of MYR3.5bn 3y-GII enticed modest BTC of 2.12 times with yield averaging at 3.667%. On corporate space, investors were heavy in AAA and AA3 bonds while trading flows were slanted towards mid-duration papers. Total activity throughout the week were robust on daily average of MYR516m or total volumes of MYR2.58bn compared to YTD weekly average of MYR1.8bn. A series of BGSM were seen transacted on combined MYR209m trades settling in between 3.86%-5.203% (-0.1bps to +4.7bps) for maturity 12/14-6/24. Other highly traded names include Prasarana 3/19 settling at 3.926% (-0.5bps, MYR190m) and Sime Darby 11/16 tighten 7.5bps (3.854%, MYR120m). Looking ahead, central bank is set to hold a final MPC meeting of the year on 6-Nov, where we believe OPR to stay at 3.25%.