Credit Market Watch: Summary for week ending 22-May

Credit Market Watch: Summary for week ending 22-May

·         MYR Credit:

Ø  Our economic team lowered 2015 inflation forecast to 2.5%-3.5% (3.0%-4.0% previously) as YTD inflation remains low at 0.9%.

Ø  PDS yields mostly unchanged WoW. Overall activity was rather subdued, though trading picked up in the 10y-20y bracket as well as the lower AA space. UEM, TPSB, Bumitama, Gamuda and Malakoff all saw good demand. Jambatan Kedua sold MYR1.3b 10y and MYR0.7b 15y sukuk at 4.30%/~45bps over MGS and 4.52%/~40bps over MGS respectively. The levels seem fair relative to our fitted quasi-govvy line.

Ø  Relative value: YTL Power'24 has tightened, last trading 3bps below our fitted line. The spread between our line and some of Malakoff and Tanjung Bin Energy papers have also narrowed.

·         Asian USD Credit:

Ø  UST rose 7-10bps WoW while JACI spreads were stable.

Ø  Sovereigns INDONs saw good two-way flows as sentiment was helped by S&P's positive outlook on the country. Indonesia sold USD2b sovereign sukuk at a profit rate of 4.325%. Most was taken up by bank and FM (81%) from diversified regions. The bonds traded up by 0.625pt but met with profit taking activities.

Ø  Chinese credits remained in demand such as the usual BABA, DALWAN and CHGRID. Chinese IG we saw better buying in Tech names.  Chinese and Korean short ends are being lifted in the market. Focus was on China Shanshui and Delhi Airport that made some negative headline news which saw their bonds came off 3-4pts.

Ø  New issue: Beijing State-Owned Assets sold USD300m 5y at +160bps and USD700m 10y at +205bps, thereafter with good two-way flows and tightened by approx. 5bps and 15bps as we write.

Ø  Credit rating: Indonesia's outlook was upgraded by S&P to positive from stable, citing greater policy effectiveness and predictability have resulted in expanded fiscal and reserve buffers as well as improved external resilience, though S&P is still the only top-3 rating agency with a non-IG rating on Indonesia.

·         CDS: EM Asia CDS spreads continued to tighten with Indonesia and Malaysia the outperformers narrower by 8bps and 6bps respectively.