Credit Market Watch: Summary for week ending 10-Feb
· MYR Credit:
Ø MGS were largely constructive but then softened back amid external uncertainty. MGS yield curve flattened with yields beyond the 5y point down by 3-4bps WoW while front end yields were higher by 1-4bps WoW. In the corporate bond space, activity picked up with MYR2.7b volume and market was largely better bid with notable interest in Sarawak Hidro papers. Corporate bond yields tightened 1-3bps WoW.
Ø Sime Darby: MARC affirmed Sime Darby’s AAA rating but maintained a negative outlook due to the uncertainties and risks surrounding the group’s planned restructuring exercise that may reduce business scale and diversification which helps support the current rating.
Ø Econs: Our economic research expects 4Q16 GDP, which is due for release on 16th Feb, to print higher at 4.7% YoY (3Q16: 4.3% YoY) on quicker pace of Industrial Production growth (5% in 4Q16 vs 3.9% in 3Q16) and slower but still resilient index of services growth (5.9% in 4Q16 vs 6.2% in 3Q16). Meanwhile, Malaysia exports/imports ended 2016 on a high note growing 10.7%/11.5% YoY in December, bringing full-year growth to 1.1%/1.9%. Trade surplus narrowed to MYR87.2b from MYR91.5b a year earlier. Our economics research forecast exports/imports growth of 2%/2.5% and trade surplus of MYR85.6b in 2017.
Ø Relative value: YTLP’s 2022 paper seem to have value last trading at 4.55%, which is 5bps above our fitted line and 10bps below its 2024 paper. MEX II 2031 continues to offer value last dealt again at 5.36%, 21bps above the fitted line.
· Asian Credit:
Ø UST yields were 1-6bps lower and the curve flatter along the 2y10y WoW. At one point the 10y UST touched a low of 2.32% as market started to doubt the tax and fiscal plans by President Trump, but then his promise of “phenomenal” tax reform in the next 2-3 weeks sent yields back up. That said, it remains to be seen in details whether the actual plans will be that “phenomenal”.
Ø Asian USD credit market strengthened with lower yields and spreads grinding tighter. JACI composite, JACI IG and JACI HY tightened 3-4bps WoW. Sovereigns saw a rally led by INDONs after Moody’s raised its rating outlook to positive from stable. On a WoW basis, INDON yields moved about 15-20bps stronger while KOREA, MALAYS and PHILIP better by about 5-15bps.
Ø Rating changes: Moody’s upgraded Indonesia’s rating outlook to Baa3/positive from stable, citing signs of a reduction in structural constraints on its rating. What this basically means is that Indonesia’s 1) external vulnerability assessment has improved on a shift in monetary policy toward preserving macroeconomic stability with current account deficit falling from 3% in 2013 to an estimated 1.8% in 2016, alongside 2) its improving institutional strengths with measured and consistent progress in implementing structural economic, fiscal and regulatory reforms accompanied by improved rankings in the World Bank’s Doing Business report and Global Competitiveness Index.
· CDS: EM Asia 5y CDS spreads continued to tighten, led by Indonesia -9bps, followed by Malaysia -7bps, China -5bps, Thailand -4bps and Philippines -3bps WoW.