Credit Market Watch: Summary for week ending 3-Feb
· MYR Credit:
Ø MGS yields moved sideways in a holiday-shortened week with the 10y yield at 4.15%. Notably, there was improved interest in extending duration. Corporate bonds yields ended the final week of January tighter by 1-2bps WoW on the back of slight cautious optimism, but trading activity was primarily in short end and quasi bonds.
Ø WCT Holdings Bhd: MARC confirmed WCT’s AA- rating on negative outlook and removed it from developing watch. The outlook is premised on market and execution risks in relation to WCT’s deleveraging plans, which remain largely intact. The agency will consider reverting the outlook to stable once more progress has been made in deleveraging.
Ø Banking: For the full-year 216, loan growth came to 5.3% YoY as a pick-up in business loans at year-end offset the moderation in household loan growth. Adding bond issuances, total credit growth is 5% YoY. Deposit intake remained lacklustre recording just 2% growth YoY and LDR edged up to 89.8% end-2016. Asset quality was steady with 1.6% GIL ratio, but absolute GILs had increased 6% YoY. The continued contraction in loan applications and approvals in Dec 2016 points to a further slowdown of loan growth in 2017.
Ø Relative value: MEX II 2031 which was last dealt at 5.36%, 20bps wide from our fitted line for that week. Liquidity however was thin and could create some distortion on prices.
· Asian Credit:
Ø UST yields dipped 2-4bps along the 3y10y WoW as US jobs data painted a mixed picture. While nonfarm payrolls beat expectation (227K actual vs 180k consensus), wage growth was uninspiring (0.1% MoM vs 0.3% MoM consensus) and prior month’s revision was equally disappointing (revised to 0.2% MoM from 0.4% MoM). Unemployment rate ticked up to 4.8% from 4.7% due to higher participation rate signalling perhaps still slacks in economy therefore justify a gradual increase in FFR. Overall, 10y UST yield remains stuck in the 2.40-2.50% range without a clear directional bias.
Ø In Asian USD credit, spreads were overall stable in a relatively muted week with JACI composite spread +1bp, JACI IG flat and JACI HY +4bps WoW. Sovereign names traded stronger on receding Trump hype as INDON, PHILIP and MALAYS yields grinded 5-10bps lower WoW.
Ø Rating changes: Sime Darby’s rating was put on review for downgrade by Moody’s, citing that the planned restructuring exercise will cause reduced diversification, scale and cash flows therefore a weaker credit profile, although the agency still awaits for details on transaction structure and certainty of the implementation.
· CDS: EM Asia 5y CDS spreads continued to tighten, led by Philippines -4bps, followed by Indonesia and Malaysia -3bps each, Thailand -2bps while China and Korea were unchanged WoW.