Ø MGS yield curve adjusted upwards by 29-36bps, with the 10y MGS yield rising 34bps WoW to 3.97%, on selling of emerging market bonds and USD strengthening against

Credit Market Watch: Summary for week ending 11-Nov

·         MYR Credit:

Ø  MGS yield curve adjusted upwards by 29-36bps, with the 10y MGS yield rising 34bps WoW to 3.97%, on selling of emerging market bonds and USD strengthening against Asian currencies in the aftermath of Trump becoming President-elect. Corporate bond space was largely muted as investors stayed on the sidelines, with traded volume down to MYR2.2b in the week.

Ø  WCT: Announced the proposed sale of Ascent office tower to EPF for MYR347m cash. Currently, EPF holds a 30% stake and WCT holds 70% stake in the office tower which translates to roughly MYR243m of the cash price for WCT. The sale is estimated to reduce WCT’s net gearing to 0.72x from 0.81x end-Jun 2016, according to our equity analyst. This positive development further reduces the risk of an immediate negative rating action, in our view. Our equity analyst continues to expect more asset monetization exercises in the medium term and assuming WCT successfully de-gears its outlook could revert to stable. We reiterate our buy call given attractive risk-reward.

Ø  HLA: RAM lifted the Developing Watch and reinstated a stable outlook following HLFG’s unsuccessful divesture of its equity stake in HLA and termination of negotiations.

Ø  Relative value: MEX II’31 seem to have value relative to DUKE3’32. The former last traded at 5.16% and 18bps above our fitted line, while the latter was dealt at 5.06%.

·         Asian Credit:

Ø  UST curve bear-steepened WoW with the 10y yield rising 37bps to 2.15%, a level not seen since Jan 2016. Market turned bearish on bonds as the President-elect Trump is seen to reduce taxes while increase spending to boost economic growth, possibly widening the budget deficit and increasing inflation. The probability of rate hike in Dec remains with market pricing in a 70% chance.

Ø  As Asian USD credit yields lagged the movement in UST yields, spreads tightened with JACI composite -10bps, JACI IG -8bps and JACI HY -21bps WoW. Sovereigns weakened, with INDON and PHILIP the worst hit.

Ø  Rating update: Moody’s placed China Oilfield Services Ltd (COSL) and its guaranteed Euro MTN by COSL Singapore Capital on review for downgrade due to concerns over the company’s weak financial results and substantial increase in leverage in 9M16.  COSL’s operating performance continued to decline in the difficult market environment, despite cost cutting initiatives. Adjusted debt/EBITDA rose to 7.7x (2015: 4.5x) which is past Moody’s tolerance for the Baa1 rating. The rating incorporates a 3-notch uplift on very high likelihood of support from its parent, CNOOC (Aa3/negative).

·         CDS: EM Asia 5y CDS spreads were mixed WoW, with Thailand and China tighter by -6bps and -2bps respectively, Philippines flat, Indonesia and Malaysia +3bps each and Korea +1bp.