Globals Bond Markets Bloodbath

15 November 2016

Credit Markets Update

¨      APAC USD Credit Market: The sell-down EM bonds continued as IG spreads and average non-IG bond yields spiked 9-31bps to 196.9bps and 6.83% respectively. The iTraxx AxJ IG widened similarly by 7.8bps to 133.4bps as Malaysian corporates’ CDS such as Telekom Malaysia (+22bps) and Petronas (+15bps) rose sharply. The sell-off in USTs gained pace as UST yields surged another 6-12bps across the curve as markets continue trade on D.Trump’s fiscal policy direction. UST 10y and 2y settled 11bps higher at 2.26% and 1.02% respectively. Moody’s opines that Swire Pacific’s profit warning for its full-year 2016 results is a credit negative as it expects a weaker set of results from its non-property business, hampered by slowing economic growth and low oil prices which will negatively impact Swire’s cash flow generating capacity and its credit profile over the next 12-18 months, although this is mitigated by its property business, under Swire Properties Limited which accounts for a large portion of the group’s earnings.

¨      SGD Credit Market: Strong property sales drive Yanlord’s topline. There was a strong widening in the short-to-mid curve by between 20-23bps, with the 2y and 5y closing at 1.66% and 2.20% respectively. Centurion Corp (NR) 3Q16 revenue rose 14% YoY to SGD28.1m from better occupancy rates of its Singapore workers accommodation business while its net profit was largely unchanged at SGD7.4m. Yanlord Land Group’s (Ba3/Pos; BB-/Sta) 3Q16 revenue rose 84% YoY to CNY5.5bn largely due to higher selling volume while net profit rose by over 5x to CNY693m mainly from favourable exchange rate movements and interest income from its sizeable cash holdings of CNY16.8bn. Moody’s affirmed Yanlord’s positive outlook on the Ba3 rating. Furthermore, Yanlord plans potential USD bonds offering and will meet with investors in Singapore and Hong Kong tomorrow.. Looking ahead, investors will be eyeing the Sept Retail Sales to be released this afternoon (consensus: 2.0%; Aug: -1.0%).

¨      MYR Credit Market: MGS downdraft continued, with a bear flattening trend as the yields on shorter-dated securities rose faster than those of longer-dated debt. The 7y GII 7/23 (Reopening) auction concluded at a decent but lower BTC of 2.21x (against 2.69x in Apr-16) with average yield of 4.094%. Moody’s opines that Malaysia has limited room for maneuver as aggressive monetary policy may expose Malaysia to risk of large reversal in capital flows, and is vulnerable to confidence shocks with its high external debt levels. Elsewhere, Telekom Malaysia (A3/A-/A-) secured a MYR916m 15y contract to provide digital terrestrial television broadcasting infrastructure, network facilities and related services to MYTV Broadcasting Sdn Bhd, an infrastructure and network service provider backed by tycoon Tan Sri Syed Mokhtar Albukhary. TELEKOM 12/24 note was last traded at 4.319% (+14.9bps).