Credit Market Watch: Summary for week ending 18-Mar

Credit Market Watch: Summary for week ending 18-Mar

·         MYR Credit:

Ø  MGS started the week soft but rallied after the dovish FOMC statement coupled with MYR strength due to broad USD weakness and higher oil prices. Yields from the front end to the belly lowered 3-5bps WoW with locals and foreigners buying in. Following the MGS rally, PDS yield spreads compressed in the AAA and GG curves.

Ø  Construction and Plantation: Effective last Friday, the levy on foreign workers was increased by MYR600/worker (+48%) for the construction sector and MYR50/worker (+8.5%) for the plantation sector in Peninsular area only. The revised levies, however, are not expected to impact local companies significantly, our equity analysts estimate.

Ø  Relative value: Prasa 30 and 31 still looks attractive last trading 9-10bps outside our fitted line. BGSM 23 seem to offer value, last traded 18bps above the fitted AA3/AA- line. PLUS 37 seem tight against our fitted line.

·         Asian USD Credit:

Ø  UST rallied with yields lower by 11-16bps along the 2y10y on dovish US FOMC outcome. Fed dots were revised down by 50bps to 0.875% for 2016, lower by 50bps to 1.875% for 2017 and lower by 25bps to 3.00 for 2018. While Fed plots were revised lower, it remains elevated compared to market implied forward rates which currently price in a very gradual ~25bps increase in FFR every year from 2016-2018. Our house view on US FFR has now changed to just one 25bps hike in 2016 from 50-75bps at the beginning of the year.

Ø  Asian credit turned to buying mode post dovish US Fed, with JACI composite narrowing -4bps, JACI IG -4bps and JACI HY -4bps WoW. On sovereign, INDON curve bull-flattened with the longer end rallying 20-25bps, PHILIPs were strong by approx 10-20bps while MALAYs also clocked in a decent 10-15bps gain.

Ø  Rating changes: Country Garden's rating was downgraded to BB from BB+ by S&P, citing deterioration in margins and leverage position. The agency doesn't expect its leverage to recover to levels previously anticipated due to aggressive land acquisitions, and is cautious about the Forest City project.

·         CDS: EM Asia 5y CDSs grinded tighter in line with strong regional currencies, led by Indonesia -16bps, Malaysia -13bps, Philippines-11bps and China -10bps WoW.