Dovish Fed Kept Rates Unchanged; S&P slashed Noble to B+; Fitch cut Greenland to BB+

16 June 2016

Credit Markets Update

Dovish Fed Kept Rates Unchanged; S&P slashed Noble to B+; Fitch cut Greenland to BB+

¨      APAC USD Credit Market: Investors continue to favour high grade credits as IG credit spreads declined 2bps to 221.2bps, whereas average non-IG bond yields rose 2bps 6.96%, while the iTraxx AxJ shed 2.5bps to 147bps. Elsewhere, US Fed left interest rates unchanged at its June FOMC meeting, while its dovish stance and cautious view on the US economy sent benchmark UST yields plunging c.2-6.6bps with 10y and 30y settling at 1.57% and 2.40% respectively. On ratings, S&P cut Noble’s rating again to B+/neg from BB- reflect its weaker liquidity position, and concerns over its strategy and execution risk following the departure of Noble’s CEO, Yusuf Alireza. Fitch slashed Chinese real estate player, Greenland Holding to BB+/neg from BBB- on persistently high leverage and on potential headwinds in the Chinese property market. Turning to primaries, Zhongrong (NR/BB+/NR) may price its 3y USD benchmark bond later today; IPT at 7.15%. Baby formula producer, Biostime International (Ba2/BB/NR) sold USD400m 5nc2 bonds at 7.25% against IPT of 7.5% area, while Australian insurer, QBE Insurance (Baa1/A-/A-) priced USD524.1m 30nc10 Tier 2 bond at 5.875%; IPT was at low 6% area.

¨      SGD Credit Market: Interest in banking seniors ahead of FOMC. There was a steepening in the short-to-mid curve, led by the 5y which rose 7.3bps to 1.96% while the 2y increased by a lesser 4.3bps to 1.64%. Interest was observed in banking papers like DBSSP, BNP and ABNANV seniors ahead of the June FOMC meeting last night, while downward price pressure was seen in NCLSP and SMMSP as Brent oil prices continued to slip to close at USD49/bbl yesterday. Looking ahead, investors will be eyeing May NODX (consensus: -1.6%; Prior: -7.9%) for further signs of dampness in the Singaporean economy.

¨      MYR Credit Market: MGS bear-flattened as the 3y benchmark rose 3bps to 3.25%, while the 10y settling flat at 3.88%. Nevertheless, the dovish FOMC meeting overnight could inspire the local market with the USDMYR strengthening to 4.0883 at the time of writing (yesterday closing: 4.1070). In the primary market, Bank Rakyat issued MYR300m 10nc5 B3T2 at 4.95% via Mumtaz Rakyat Sukuk (AA3); Boustead priced MYR160m 1.5y AAA-bg MTN at 4.63%; while TSH Sukuk (AA-) printed 5y at 5.10% and 7y at 5.30% on combined MYR150m. Meanwhile, Tropicana Corporation is looking to early redeem the outstanding of MYR280m under its Bank-Guaranteed CP/MTN by the end of 3Q16. Secondary market was dominated by AAA names such as Cagamas, PLUS and Danga on moderate trading activity of MYR399m. Elsewhere, Malaysia’s inflation eased marginally to 2.0% YoY in May as expected (Apr: 2.1%, Mar: 2.6%) due to base effects as well as weaker demand.