RHB FIC Credit Market Weekly - 22/5/15

22 May 2015

Credit Market Weekly

Strong APAC USD and SGD Primaries Ahead of FOMC Minutes; Better-Risk Sentiment Driving HY Demand

                                                                       

REGIONAL

¨      Continued demand for HY names as risk aversion declines; Strong primary prints from China. Risk aversion slightly dissipated this week, with the iTraxx AxJ declining 3.4bps to 104.6bps. The FOMC minutes released on Thursday painted a Fed that still had dovish inclinations, thus ruling out a June increase and reinforcing FFR expectations of a Sept-2015 takeoff, or even as late as 1Q2016. We saw a robust primary market in the earlier part of the week led by a mega USD2.5bn issuance from Westpac Banking Corp (Aa2/AA-/AA-) with fixed 3y (T+65bps), floating 3y (3mL+43bps) and fixed 5y (T+80bps) and Beijing State-Owned Assets (A2/A/A) with a USD1bn print comprising of a 5y (T+160bps) and 10y (T+205bps). APAC USD issuances were dominated by Chinese names, probably taking advantage of the supportive investor sentiment partially resulting from last week’s PBoC rate cut. Demand for HY papers continued to prove resilient, with interest seen in China HY property names (Shimao, Fantasia) and as well as O&G names (SINOPE, CNOOC) despite the current uncertain trajectory of Brent oil prices. It seems that investors are not clinging on to the old maxim ‘sell in May and go away’ as delayed rate expectations are keeping open a window of opportunity for investors. Key upcoming data releases includes US Apr CPI (22-May), US New Home Sales (May-26) and US Q1 GDP (29-May).

¨      Healthy primaries before FOMC minutes released; Preference for HY as hedge against rising rates. Issuances continued to be healthy in the earlier part of the week up until before the release of the FOMC minutes on Thursday and Yellen’s speech that is expected early Saturday morning. We saw issuances from Cambridge MTN (-/BBB-/-) with a 5y SGD130m at 3.95%, Starhill Global REIT (-/BBB+/-) with a 8y SGD125m at 3.4% and National University of Singapore (Aaa/-/-) with a 5y SGD400m at 2.2%, while we saw Golden Agri-Resources (NR) and Gallant Ventures (NR) retap the market with their 18’s. Flows were observed in HPLSP, GALVSP, GGRSP ahead of their new prints, mixed trades in O&G names (SWIBSP, EZRASP, MIOAU) as Brent oil prices hover around USD65/bbl and an orientation towards HY papers like OHLSP and TRIOIJ, potentially as a hedge against the normalization of interest rates.   

¨      SORs movements toned down.  Compared to the volatile movement in swap rates the past two weeks, SORs were relatively muted in movement this week, with the 3y and 5y tightening by -0.6bps (to 1.62%) and -1.75bps (to 2.07%) only. Looking ahead, investors will be eyeing key domestic numbers such as Apr CPI (consensus: 0.1%; prior: -0.3%) (25-May) and IP (consensus: -3.6%; prior: -5.5%) (26-May). 

MALAYSIA

¨      Ringgit bonds gain +0.11% during the week, focus on new 20y MGS 5/35; inflation rose 1.8% in April. Local govvies moved within a razor-thin range this week at c.0.4-1.7bps as investors stayed on the sidelines, waiting for 11MP announcement and inflation on Friday, which came at 1.8% below consensus forecast of 2.2%. Investors focus was on the new auction of MYR2bn MGS 5/35 which was priced at 4.254% with a healthy BTC of 2.724x. The Government plans to spend MYR260bn of gross development expenditure in the next 5 years, while targeting economy to grow at 5%-6% during this period. On the corporate bonds, Jambatan Kedua (for Second Penang Bridge) priced a dual-tranche, government-guaranteed MYR2bn of 10y at 4.30% (MYR1.3bn) and 15y at 4.52% (MYR700m). Secondary space closed firmer with interest seen across the spectrum, from GG to corporate – PTPTN 8/26 ended the week at 4.45% with MYR130m done, Danainfra 4/30 at 4.571% (MYR75m) while PLUS 1/37 settled at 5.005%.