RHB FIC Credit Market Weekly - 10/4/15

10 April 2015

Credit Market Weekly

Sluggish New Bond Sales Despite Firm Risk Appetite; Heavy Trading in GG MYR Bonds Ahead of Stricter LCR in June   

                                                                       

REGIONAL

¨      Risk appetite remains supported; new bond sales slump to 2-month low. This week, risk appetite rebounded as reflected by the iTraxx AxJ narrowing 5.3bps to 105bps, supported by Greece’s agreement to and repayment of IMF debt on 9-Apr, dovish comments from FOMC members and Brent crude prices rising 3% WoW to USD56.57/bbl. Credit markets began on a favourable tone following disappointing US NFP data for March (actual: 126K; consensus: 245K), which sent UST rates sharply lower (3-10bps across). We noted the biggest yield moves in EIBKOR 24, DBSSP 15 and OGIMK 23 (1MDB Global Investments), which narrowed 16-26bps WoW. Property name, Franshion, saw yields on its FRANSH 17-21s decline as well albeit lower by 10-12bps. On the flipside, NOBLSP 15 and 20s took the brunt of Muddy Waters’ short sale assault, widening 50-109bps. We also observed yields for Indian and Korean banks ending the week firmer in general, with the respective central banks, RBI and BOK, maintaining policy rates. We also noted ICICI, HDFC and Axis Bank USD notes remaining stable amid Moody’s one-notch downgrade of the private banks’ deposit ratings to align them with India’s sovereign bond ratings of Baa3. Also this week, interest in O&G credits CNOOC 23-39, SINOPE 42-43 and PERTIJ 41-43 were somewhat revived by the rally in crude oil prices.

¨      On the primary front, Shinhan Bank’s (A1/A/A) USD600m 5y senior was the only new bond sale the week, drawing USD4.0bn in orders and pricing at T+92.5bps (vs. IPT+110bps). Additions to the pipeline include two inaugural issuers, China Communications Construction (A3/NR/A-) and Yuexiu Transport (Baa2/NR/NR), which began regional roadshows on Thursday. We also noted Formosa Plastics held investors meetings for April 7-13 for a potential USD issuance (expected rating: NR/BBB+/NR). On a separate note, Sunac Holdings (B1/BB-/BB-) seeks to change terms on its 2017 and 2018 callable bonds while Golden Agri-Resources Ltd (Ba2/NR/NR) is to begin investor meetings in Singapore on 14-Apr.

¨      Expected MAS policy easing; Single primary this week. This week saw primaries fall to SGD300m after last week’s issuance boom of SGD946m, bringing YTD issuances to around SGD5.67bn, around 80% of last years’ amount over the same period. The SGD300m was from a single issuance by OUE Ltd (NR) with a 5y at final price of 3.8%. In the secondary market, we saw a preference for established quality names such as HDBSP, PSASP and SPSP as well as yielder names like HYFSP and GAVLSP. There was also some selling in the STSP complex after the announcement of Singtel’s acquisition of Trustwave, a US-based security firm. Investors will be eyeing the outcome of the MAS policy meeting next Tuesday, with MAS expected to ease monetary policy further (after its previous surprise easing move in Jan-2015). We are expecting MAS to widen the currency bands (to allow space for SGD depreciation) after sluggish industrial production, growth and inflation numbers. This could reignite some growth in the slowing industrial sector (Mar PMI 49.6; Feb PMI 49.7), with industrial REITs such as SSREIT, CREIT and AREIT potentially gaining.

¨      Strong tightening in short-to-mid SOR. There was strong tightening in the short-to-mid swap rates, with the 3y and 5y SOR closing at 1.54% (-12.7bps) and 1.86% (-11.2bps) respectively. The 3y/5y spread continued to stay at lower levels of around 30-32bps. Looking ahead, key data releases include the 1Q SG GDP and MAS Policy Statement (14-Apr), Feb Retail Sales (15-Apr) and Non-oil Domestic Exports (17-Apr).

MALAYSIA

¨      Heavy trading in GG bonds before stricter LCR in June; Slower IPI growth of 5.2% y-o-y in Feb (Jan-15: 7%). The Ringgit bond market registered a mild gain of 0.05 (up till Thursday), after a strong gain of 0.28% in the previous week. Corporate market remain supported with robust flows of MYR3.5bn amid issuances from DanaInfra (6-Apr) and Danga (9-Apr). Throughout the week, investors were focusing on mid-to-long duration bonds. GG bonds continue to receive good demand (a third of trading volume) as banks are preparing for the stricter requirements under the Liquidity Coverage Ratio rules (LCR) starting Jun-15, where quasi-government bonds to be treated as High Quality Liquid Asset (HQLA) with 0% haircut. Other highly traded names include CIMB B3T2 9/23c18 (MYR125m), MCIL 2/17 (MYR90m) and RHB B2T2 4/20c15 (MYR60m). On the sovereign side, we saw the MGS curve bear flattened with 3y and 5y benchmarks inched higher by 2bps-4bps w-o-w, while 7y and 10y increased marginally. Investors to focus on the new MYR4bn 5.5y MGS auction next week (tender closing on Tuesday, 14-Apr).