Credit Market Watch: Summary for week ending 16-Aug
· MYR Credit:
Ø MGS curve shifted higher with yields along the 5y15y up 7-11bps WoW. Market tone softens as we draw closer to the BoJ and US FOMC meeting this week. Domestic corporate bond market overall saw better sellers in a holiday-shortened week with reduced liquidity.
Ø Relative value: YTL Power’23 offered relative value being traded 19bps wide from our fitted line. WCT Holdings’20 gave a 39bps pick up over our AA3/AA- fitted line, which we think is fair for now and largely a reflection its weakened credit with a negative outlook as there seems to be no near-term respite for the name with deleveraging plan taking longer than expected to materialise, and the risk of downgrade is highly visible if the company fails or encounters further delay in its de-gearing exercise.
· Asian Credit:
Ø UST curve steepened a tad WoW as the 10y UST yield rose 2bps while 2y UST yield declined 2bps. The probability of FFR hike in the September FOMC meeting edged lower to 20% from 22% at the beginning of last week. The outcome of the BoJ and US FOMC meeting will be available on 21st Sep and 22nd Sep (Asian hours) respectively.
Ø In Asian USD credit, spreads widened WoW with JACI composite +11bps, JACI IG +10bps and JACI HY +14bps. Sovereign names generally underperformed corporates, with the INDON curve approximately 15-20bps higher, MALAYS and KOREA about 10-15bps higher while the PHILIP curve 10-20bps wider.
Ø China data: August M2 growth accelerated to 11.4% beating market consensus (Survey: 10.5%, Prior: 10.2%). Aggregate financing rose strongly to RMB1.47t (Survey: RMB948.7b, Prior: RMB463.6b), while new Yuan loans jumped to RMB948.7b (Survey: RMB750b, Prior: RMB463.6b), in sync with the still robust activity in housing markets where data on new home prices showed that more cities (64/70) recorded gains in August than July (51/70) on MoM basis. On YoY basis, the increase in new home prices for Tier-1 cities remained in high double digit in the region of 21% to 37%, and YoY growth rate accelerated in August for Beijing, Shanghai and Guangzhou.
Ø Rating update: Shanghai International Port was put on review for downgrade by Moody’s, citing its investment in Post Savings Bank of China’s IPO, which is expected to be debt-funded, will raise debt load by 70% and stress its adjusted FFO/debt cover from 41.2% at end-2015 to 21%, breaching the 25% threshold for its existing A1 rating. Further, the agency cited that such a large investment in non-core assets may restrict capital available for expansion of core port operations. However, no rating uplift is factored in yet for Shanghai International Port from the Shanghai municipal government.
· CDS: EM Asia 5y CDS spreads widened WoW in line with the broadly weaker regional currencies, with Philippines +12bps, Indonesia +9bps, Malaysia +8bps, China +5bps and Thailand +3bps WoW.