MGS yield curve steepened WoW with the 10y yield 3bps higher at 4.26% and the 15y yield 5bps higher at 4.72%. Corporate bond market remain active with better bids though corporate yields were little changed WoW. Traded volume totalled MYR3.3b, heavily skewed towards the short end.

Credit Market Watch: Summary for week ending 13-Jan

·         MYR Credit:

Ø  MGS yield curve steepened WoW with the 10y yield 3bps higher at 4.26% and the 15y yield 5bps higher at 4.72%. Corporate bond market remain active with better bids though corporate yields were little changed WoW. Traded volume totalled MYR3.3b, heavily skewed towards the short end.

Ø  LEKAS: MYR633m junior sukuk’s C2/stable rating affirmed by RAM. The rating reflects a low likelihood of repayment and the deep subordination to the company’s other debts such as the RCSIDS and syndicated term loan. LEKAS, a closed-toll highway (toll charges depends on distance travelled), saw a 12% YoY drop in long-haul traffic owing to the toll rate hike in Oct 15 which offset an increase in short-haul traffic and resulted in a 2.7% dip in revenue, exceeding the agency’s expectations.

Ø  Relative value: Malaysia Airports’20 and ’22 seem to offer value being 13-14bps outside our AAA fitted line after being last dealt at 4.55% and 4.68% respectively. Passenger growth is expected to stay resilient with our equity analyst projecting an uptick to 8% (2016E: 6%).

·         Asian Credit:

Ø  US Treasury yield curve shifted lower WoW with the 10y yield 2bps lower at 2.40%. Brexit risks initially drove demand for safe havens but gains were reduced as decent retail sales and producer price data resulted in more expectations of Fed raising interest rates.

Ø  For Asian USD credit spreads, JACI composite, JACI IG and JACI HY were pretty much unchanged WoW. On sovereign, the MALAY curve strengthened WoW.

Ø  Rating changes: SME Bank of Thailand’s baseline credit assessment rating was upgraded to b3 from caa1 by Moody’s premised on the bank’s improving solvency profile evidenced by recent capital increases and lesser gross NPLs. The bank’s long term foreign currency deposit rating remains at Baa2.

·         CDS: EM Asia 5y CDS spreads mostly widened, led by Indonesia +4bps, followed by Malaysia and Korea +2bps each and China +1bp, while Philippines -2bps and Thailand -1bp WoW.