Ø The government bond yield curve shifted lower by 2-8bps WoW, with the 10y at 4.22%, as foreign demand returned on top of strong demand domestically. Corporate bond yields were little changed, though volume was decent totalling MYR3.3b with a

Credit Market Watch: Summary for week ending 20-Jan

·         MYR Credit:

Ø  The government bond yield curve shifted lower by 2-8bps WoW, with the 10y at 4.22%, as foreign demand returned on top of strong demand domestically. Corporate bond yields were little changed, though volume was decent totalling MYR3.3b with a pick-up in the AA spaces as well as in the 5-10y sector.

Ø  External reserves: Declined to USD94.3b (-USD0.3b) at 15 Jan 2017 from USD94.6b end-2016 mainly due to net capital outflows. With recent net foreign buying of Malaysian securities including bonds, foreign reserve should stabilize. Key thing to monitor is whether foreigners will rollover bonds that are maturing on 15 Feb (MYR8.8b) and 15 Mar (MYR10.5b).

Ø  Relative value: Danainfra’29 last traded 18bps above our fitted quasi line at 4.68%. Bumitama’19 appear to have value last dealt at 4.73%, or 16bps outside the fitted line. Bumitama achieved better than expected production yield recovery in 4Q16 with output higher by 10% YoY, bringing its total crop output for 2016 to 1,513k MT or -4.1% YoY, which is better than management’s -5% expectation.

·         Asian Credit:

Ø  US Treasury yields traded range bound with not much conviction ahead of President Trump’s inauguration and policies. Asian USD credit spreads widened with JACI composite -6bps, JACI IG -5bps and JACI HY -11bps WoW. On sovereigns, PHILIP softened amid pressure from the selloff in UST, while INDON held up largely unchanged WoW.

Ø  Genting Overseas: Issued USD1b 10y bonds at T10+198bps vs initial price guidance in the +220bps area. After issuance, bond prices traded lower from reoffer level.

Ø  Rating changes: Dalian Wanda’s issuer rating was downgraded to Baa3 from Baa2 as Moody’s expects the company’s debt leverage and business risk will increase as it shifts into a bulk sales model for its malls. Sales volume thus far have not been encouraging.

·         CDS: EM Asia 5y CDS spreads were mixed, with only Philippines +2bps, China and Thailand unchanged, while the decline in spreads was led by Indonesia -5bps, then Malaysia -2bps and Korea -1bp WoW.