Credit Market Watch: Summary for week ending 23-Oct

Credit Market Watch: Summary for week ending 23-Oct

·         MYR Credit:

Ø  Budget 2016 was overall neutral to the bond market. Last week MGS yields ended mixed with the 10y MGS +1bp. PDS market was lively in the GG and AA space. Power names were sought after such as Malakoff Power'30 and '31, TBEI'27 and YTL Power'21 moving 1-3bps tighter late week. Short dated papers continued to be in demand.

Ø  Rating updates: RAM affirmed Litrak's and Besraya's ratings at AA2/stable and AA3/stable respectively with expectations of both toll concessionaires maintaining minimum FSCR of 2.0x. Besraya is anticipated to face slower traffic growth after the recent toll hike and potential traffic diversion to Maju Expressway's Seri Kembangan interchange opening in 2016.

Ø  Relative value: Although TNB Western'26, Malakoff'30 and '31 and TBEI'27 and '32 last traded above our fitted lines, we think there is limited upside at current levels.

·         Asian USD Credit:

Ø  PBoC trimmed its 1-year lending rate by 0.25% to 4.35% while lowering RRR by 50bps last Friday, but not a surprise to the market and expectation is for more RRR cut. This is the 6th interest rate cut totalling 1.65% since Nov 2014.

Ø  UST curve bear-steepened moderately. Asian credit traded firmer as risk sentiment continue to improve helped by dovish comments from the ECB with potential new stimulus in December. On WoW basis, JACI composite -7bps, JACI IG -6bps and JACI HY -13bps.

Ø  Sovereigns' performance was mixed. KOREA and MALAYS widened while INDON and PHILIP managed to extend the rally a bit further overall 5-10bps stronger in yields. OGIMK'23, on the other hand, suffered some selloff with yield up by approx. 30bps WoW.

Ø  Malaysian names like PETMK and IOIMK were well bid. We noted more profit takers with good two-way flows on Chinese IG and still net buying interest. Chinese HY real estate names continued to tighten.

Ø  Rating changes: Maoye's rating was downgraded by Moody's to B1 from Ba3 with a negative outlook, citing concern over aggressive acquisitions amid weak revenue and rising leverage.

·         CDS: In line with regional currency strength, 5y CDS spreads tightened with Korea -3bps, Philippines -4bps and Thailand -3bps while Malaysia was flat WoW.

Thank you.