BNM Expected to Hold Rates; Malaysia Foreign Reserves Grew to USD98.3bn

23 November 2016

Credit Markets Update

BNM Expected to Hold Rates; Malaysia Foreign Reserves Grew to USD98.3bn

¨      APAC USD Credit Market: Stable Asian credits with average HY yields tightening -3bps to 6.76%, while IG spreads held firm at 190.3bps. Asian IG credit protection cost narrowed to 127.9bps (-1.6bp) driven by high grade Chinese/HK corporate CDS (HK Land, Swire Pacific, China Development Bank). Elsewhere, UST yields bear flattened with yields rising 1-2bps after the surge in US Oct existing home sales (+2% MoM; prior: -0.6%) as the 2y settled higher at 1.09% (+2bps), whereas Brent oil prices continue to advance to USD49.2/bbl (+0.5%). Primaries stayed active, Hong Kong’s Dah Sing Bank (issue rating: Baa2/NR/BBB) received over USD700m orders for USD250m 10nc5 T2 bonds, after setting price guidance of T+255-260bps (IPT: +275bps). Ping An Real Estate (NR) priced USD300m 3y bonds at T+235bps (IPT: +270bps) while Chengdu Xingcheng (NR/NR/BBB+) sold USD300m 5y bonds at T+190bps (IPT: +210bps). Casino operator, Melco Crown Entertainment (NR/BB/NR) via its SPV, Studio City (B1/BB-/NR) priced USD350m 3NCL Reg S/144a bonds at 5.875% compared to IPT at 6% area (BTC: 2.0x), and USD850m 5nc2 Reg S/144a notes at 7.25% (IPT: +7.375%; BTC: 2.11x).

¨      SGD Credit Market: Rickmers Management Trust bond defaults. There was a decline in the short-to-mid SOR curve by 1-4bps, with the 2y and 5y closing at 1.62% and 2.19% respectively. Higher grade papers such as MAPLSP, HDBSP and MRTSP appeared tighter by 4-8bps. Swiber (NR) announced that the disposal of a USD10.25m vessel, which is mortgaged to DBS, has been completed. Rickmers Management Trust (NR) announced that they have technically defaulted on their SGD100m RMTSP 5/17. Looking ahead, the Singapore 3Q16 final GDP (consensus: 1.0%; 2Q: 0.6%) will be released tomorrow morning.

¨      MYR Credit Market: MGS recouped some of the price weakness on bargain-hunting, with 10y MGS retreating 10bps to 4.21%.  Secondary corporate trading volume remained low at MYR265m led by GB Services 11/19 (+50.2bps to 4.648%) and WCT 4/20 (+34.9bps to 5.847%). On the other hand, Hong Leong Bank (A3/NR/A-) reported a net profit of MYR543m (+7.9% YoY) in 1QFY17 due to a 7bp YoY increase in net interest margin (NIM) to 2.01% (driven by the 25bps cut in OPR in July), and a low provision of 5bp. HLFG 12/16 was last traded on 21-Nov at 4.214% (+9.4bps). On the macro front, Bank Negara Malaysia (BNM) international reserves improved by USD0.5bn MoM to USD98.3bn as at 15-Nov. BNM is expected to hold rate unchanged at 3.00% on today’s MPC meeting (3.00pm) amid recent currency market volatility.