Tuesday, March 31, 2015

RHB FIC Rates & FX Market Update - 31/3/15

31 March 2015

Rates & FX Market Update

USD Remained Firm Amid Quarter End Rebalancing; AUD Underperformed on Declining Commodity Prices

¨    Marginal gains were seen on USTs despite healthy household data as investors continued to dwell on Yellen’s dovish comments. Yields on 10y USTs are likely to hover around 2.0% amid quarter end rebalancing, bolstered by prospects of a slower rate hike trajectory and is likely to support the USD’s resilience against major crosses in the shortened week ahead. BTPS and SPGBs gained amid healthy demand at the BTPS reopenings while movements on core EGBs were muted ahead of ECB’s minutes, as investors await further clues on ECB’s plan to fulfill the PSPP purchases as core EGB yields continue to edge closer to the -0.2% limit. Else, the AUD fell 1.07% to 0.7652/USD as AUD sentiment weakened alongside softer commodity prices while yields on ACGBs fell 4-5bps as investors continue to price in an increasing likelihood of a RBA rate cut.
¨    In South Korea, the weak consumer confidence and IP print is likely to build the case for further BoK easing, where we opine for the all time low KTB yields to be further pressured lower. Else, ThaiGBs and THB shrugged off optimism from an unexpected growth on manufacturing production data, as attention turned towards the government’s intention to lift the martial law, where we opine for it to likely be a non-event, as Junta retains its capacity to maintain peace and order. Over in Indonesia, yields on IndoGBs rose 3-11bps ahead of the IndoGB reopening which is likely to remain soft on deteriorating appetite amid a weakening IDR and higher gasoline prices which could spur inflation
¨    EURUSD edged lower overnight, falling back towards its short term support of 1.0826, after failing to break above 1.10. Dovish minutes detailing ECB’s decision to extend PSPP purchases up to -0.2% yielding govies alongside a likely hawkish tilt from Fedspeaks this week may cap any upward momentum of the EUR, and drive it lower towards its next support at 1.06/USD.

RHB FIC Credit Market Update - 31/3/15

31 March 2015

Credit Market Update

China Easing - Housing Ruling Provides Another Support for Asian Credits; Hold YTLPI 24 MYR

¨      Credits gained alongside tighter CDS; China eases housing rules. iTraxx inched tighter to 111.0bps (-1.7bps). Credit yields declined, led by real estate names such as FRANSH 19, YUEXIU 18 and CHIOLI 19-20. We expect CN property names to benefit from China’s relaxation of the minimum downpayment requirement for second home buyers (from 60% to 40% for buyers with outstanding mortgages). Meanwhile, China Cinda Asset Management’s benefits from higher non-performing loans and liquidity issues, with the company almost doubling the holding of distressed debts to CNY206.8bn in 2014 (2013: CNY114.8bn). CCAMCL 19 tightened a couple of bps following Friday’s results, where net income rose 32%. Meanwhile, we also saw gains on commodity names such as NOBLSP 20, CITPAC 20-23 and PETMK 19. On the primary front, Hong Kong Telecommunications (Baa2/BBB/NR) sold USD500m 10y bonds at T+178bps, 17bps inside IPT. Looking ahead, we expect trading to tilt firmer today following overnight decline in UST yields (-1bps to -3bps). Investors may watch out for consumer confidence index tonight (expectedly flattish), ahead of ADP employment change and ISM manufacturing tomorrow.
¨      Upward shift in SORs; pickup in credit activity amid new bond sales. The SGD swap curve experienced an upward shift of 5-6bps, despite the UST curve flattening 1-4bps last Friday; we observed 3y and 5y SORs rise 6.3bps and 5.4bps to 1.81% and 2.11% respectively. In the secondary market, saw yield compression in EZRASP 15 and Pc18, GALVSP 17, and TRIOIJ 16-17. Meanwhile, O&G names like SWIBSP 15-18s ended the day wider. On new issues, Ascendas Hospitality Trust (NR) sold 5y SGD75m notes at 3.30% mainly to Singapore-based investors (97%), 81% of which comprised fund managers and/or banks. In addition, Hotel Properties Limited (NR) announced 5y SGD papers (expected size: SGD50m) with a final pricing guidance of 3.88%.
¨      Lackluster MYR bond market; MGS 9/22 priced at average yield of 3.795%. Ringgit bond market was relatively quiet yesterday on MYR317m and MYR1.3bn trading volume in the corporate and govvies space respectively. We saw Prasarana and PASB moved sideways settled at 3.863%-3.897% for tranche maturing 2019. Also seen was Sime Darby 11/16 tightened 3.3bps to 3.801% despite negative outlook by Fitch yesterday. On the sovereign front, MGS benchmarks ended in mixed tones, tilted towards negative territory as MYR depreciated to 3.711/USD yesterday. The new 7.5y MGS 9/22 were sold at averaged yield of 3.795% on relatively lower bid-to-cover (BTC) of 1.8x. At closing, the 3y, 7y and 10y-MGS rates inched 0.6-2bps higher to 3.346%, 3.785% and 3.901% respectively.
¨      On the primary side, DanaInfra printed MYR3.2bn on 5 separate tranches – 7y (4.15%, MYR600m), 10y (4.33%, MYR300m), 15y (4.61%, MYR300m), 25y (4.95%, MYR1bn) and 30y (5.05%, MYR1bn). Elsewhere, MahSing issued MYR540m of Pnc5 bond at 6.8% on private placement. YTD total issuances increased to MYR17.2bn, still about 20% less than MYR21.6bn recorded in the same quarter last year.

YTL Power International Bhd (“YTLPI”) YTLPI 10/24 (RAM: AA1) (Last trade: 26-Mar; Price: 100.15; Yield: 4.93%; 10y-MGS+ c.103bps) (Amt O/S: MYR700m)
Sarawak Energy Bhd (“SEB”)
SEB 7/24 (RAM: AA1) (Last trade: 27-Mar; Price: 102.08; Yield: 4.719%; 10y-MGS+ c.82bps) (Amt O/S: MYR600m)
Relative Value
We reiterate our recommendation on YTLPI 10/24 which has tightened 27bps since our recommendation in 2-Mar. We continue to see value in YTLPI 10/24 which offers pick-up of 21bps over SEB 7/24, although the former subject to holding company risk. We view that the structural subordination of YTLPI is mitigated by the strong financial profiles of YTLPI and YTL Group.
YTLPI’s credit profile is supported by the following:
1)     Stable business profile. YTLPI’s key profit generators are from its utilities assets in Singapore (Power Seraya) and UK (Wessex Water). Each of the assets has been contributing MYR500-800m to the Group’s PBT for the last 3 years.
2)     Strong balance sheet. Supported by huge cash and deposit balances of MYR11.2bn, YTLPI net debt stood at MYR12bn (gearing: 2.4x, net gearing: 1.3x) and net debt-to-EBITDA of 8x.

*All financial figures as at Dec-14.

FX Notes - China Property Cooling Measures - 31 Mar 2015

CNH: China Property Cooling Measures

*      The intent of these cooling measures is expected to boost housing market sentiment and housing transaction and mitigate the housing downturn in the interim while housing supply overhang takes time to be absorbed. We do not expect to see a material recovery in house prices amid housing supply overhang. That said this is definitely a positive step. We are hopeful of more targeted measures as the Chinese economy continues to fine-tune itself.
*      On FX, the Renminbi could benefit. Taken together with other strategic reform plans such as the ‘Belt and Road’ initiative; local government debt swap (aimed at lowering cost of funding); plans to cut the number of sectors where foreign investment was previously restricted by half (to spur FDI inflows); advancing financial reforms (to achieve reserve currency status for Renminbi), we believe the Renminbi will resume its appreciation gradually.
*      That said we are still expecting targeted monetary easing to better align its monetary policy with fundamentals. We believe another 50bps cut in RRR and 30bps cut in benchmark rates to come in 2Q.

BII Weekly Bond Report - 31 Mar 15

Under Pressure with fuel Price Hike


Indonesia bond market recorded gains amid minimum market sentiments last week. Investors were basically confused where the bond market is heading. Due to tight liquidity of Rupiah, local bank were seen selling their bond portfolio to the market while on the other hand, foreigners were seen on the buy side. Bank Indonesia governor in a statement to the press expects foreign ownership in Indonesia bond market to be below 30%. We confirm this with DMO and found that they were not in any discussion with the central bank in regards to restriction of foreign ownership in Indonesia bond market. Result of President Jokowi seven day trip to Japan and China may have impact in Indonesia economy in the long term but definitely have minimum impact towards bond market performance ahead. DMO last week issued PBS006 worth of Rp2.7 bn through private placement where Indonesia Deposit Insurance Corporation (LPS) was acting as the standby buyer. Overall, market across the region booked gains last week with Singapore bond market leading with an incline of 1.08% followed by Philippines (+0.61%), Indonesia (+0.37%), Thailand (+0.36%), Malaysia (+0.16%), South Korea (+0.14%) and Taiwan (+0.05%) while China (-0.53%) and India (-0.15%) continue booking losses.

Foreign ownership stood at Rp502.2 tn or 38.47% of total tradable government bond as of Mar 27th. Foreigner booked net buy worth of Rp3.79 tn last week. On the other hand, ownership of investors which are segmented as others incline by Rp3.12 tn. This is caused by the PBS006 private placement to LPS.

Total trading volume at secondary market for the government segment was noted amounting Rp68.29 tn with average trading volume per day of Rp13.66 tn (vs average per day (Jan – Dec) trading volume of Rp12.70 tn) during last week with FR0070 (10y benchmark series) as the most actively traded with total volume reported amounting Rp14.56 tn. On the corporate segment, total trading volume was noted moderate amounting Rp2.84 tn resulting in average trading volume per day of Rp0.57 tn (vs average per day (Jan – Dec) trading volume of Rp0.75 tn) with BEXI02ACN5 (Shelf registration II Indonesia Eximbank Phase V Year 2015; A serial bond; Maturity date: 23 Mar 2016; Rating: idAAA) as the most actively traded bond with total volume reported amounting Rp207 bn.


Summary on the President’s trip to Japan and China. President Jokowi starts his state visit by visiting Japan and China. These countries along with U.S. market and Eurozone are considered as Indonesia’s major trading partners. The President continues to promote Indonesia to its major partner with a specific goal: Foreign Direct Investments (FDI). From trip to Japan, he was promised by Japan Prime Minister a loan worth of ¥140 bn for railway projects which includes current MRT project which is under construction and welcome’s more Japanese firms and their investment, especially in the fields of power generation, port construction, road improvement, expressway construction and building industrial complexes in special economic zones. From trip to China, both of the leaders did not discuss any specific/concrete commitments hence discussed various bilateral issues and witnessed the signing of several memorandums of understanding (MOU) on the issues of finance, industry, infrastructure, natural disaster management and aerospace. “Implementation” is what we should wait now. With more realization of Jokowi’s investment plan, we may see a positive sentiment in Indonesia economy thus would result in better rates prices. Hence, the positive sentiment won’t any where soon.

Weekly auction with an indicative target issuance of Rp10 tn. DMO will conduct their final conventional auction in first quarter this week with four series to be auctioned which are SPN03150701 (Coupon: discounted; Maturity: 1 Jul 2015), SPN12160401 (Coupon: discounted; Maturity: 1 Apr 2016), FR0070 (Coupon: 8.375%; Maturity: 15 Mar 2024) and FR0068 (Coupon: 8.375%; Maturity: 15 Mar 2034). We believe that the auction will be oversubscribe by 1.5x – 2.5x from its indicative target issuance while our view on the indicative yield are as follows SPN03150701 (range: 5.500% – 5.600%), SPN12160401 (range: 6.000% – 6.100%), FR0070 (range: 7.400% – 7.500%) and FR0068 (range: 7.680% – 7.780%). Till last week, Indonesian government has raised approx. Rp92.1 tn worth of debt through bond auction in 1Q 15 which represents 117.3% of the 1Q 2015 target of Rp78.5 tn. On total, Indonesia government has raised approx. Rp170.2 tn worth of debt through domestic and global issuance which represent 37.7% of this year target of Rp451.8 tn.

This week, we see Indonesia bond market would move with a negative tone as a result of inclining RON88 and diesel prices to Rp7,300 per liter and Rp6,900 per liter respectively which may create a cost push inflationary. Other reason for bond price to decline this week is Yellen’s statement on Friday where she sees that FFR hike may start from this year. Our house remains on the call of 50 – 75 bps hikes in FFR this year. Indonesia inflation data will be published this Wednesday with an inflation expectation of 0.20% mom or 6.38% yoy by economist consensus; further expectation of inflation (due to fuel price hike) may hamper positive sentiment this week. Investor might also wait and see on the U.S. NFP data and unemployment rate which will be published at the end of this week. NFP is expected to reach 250K while unemployment rate is expected to remain at 5.5%. Any NFP number above than 250K and between 250K – 300K would be negative for LCY bond market. We expect 10y yield may move within the range of 7.25% - 7.50% this week.

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