16 March 2017
Credit Markets Update
Fed Rate Hike Leads Market Rally
MYR Credit Market:
¨ Benchmark yields fell before FOMC minutes. Trading volume in the government bonds segment totalled MYR5.3bn where 75% of the activities were concentrated in the short-tenure MGS 9/17 and 2/18 after the heavy maturity of MYR10.5bn yesterday. Activities in the benchmarks were muted as investors stayed on the sidelines before the FOMC meeting overnight. Nevertheless, benchmarks yields fell with the 3y MGS dipping 5bps to 3.44% while the 10y MGS fell 3bps to 4.15%. The MYR closed flat at 4.449/USD, though less hawkish FOMC meeting could give support to the local currency. MYR was seen trading 0.28% firmer this morning at 4.436/USD level.
¨ Corporate market was quiet. Volume totalled MYR316m. Among the top traded were: - Maybank IT1 c18 fell 5bps to 4.84% on MYR50m trades, followed by Putrajaya ’21 (-0.3bps to 4.295%) and BGSM 6/24 (-3bps to 4.999%). On the other side, the losers were MACB 8/20 (+2bps to 4.36%), Star 5/18 (+4bps to 4.20%), while FRL 10/21 increased 13bps to 4.80%.
¨ UEM Edgenta was assigned a preliminary rating of AA-/Sta. MARC assigned an AA- rating to UEM Edgenta’s MYR1bn ICP/IMTN Programme with stable outlook underpinned by the rating agency’s assessment of parental support from UEM Group being a strategic subsidiary under the Group. The rating was however moderated by the higher leverage after acquisitions of Asia Integrated Solutions Pte Ltd and KFM Holdings Sdn Bhd, as well as the challenging prospects for the O&G and resource industry consultancy services in Canada and Australia.
APAC USD Credit Market:
¨ US Treasuries rallied yesterday despite the Fed announced an interest rate hike of 25bps as expected, moving the fed fund rate between the 0.75%-1.00% target range. The FOMC also maintained its forecasted two rate hikes this year, with median forecast for 2017 and 2018 remaining at 1.38% and 2.13% respectively, while the median forecast for 2019 increased from 2.88% to 3.00%. On the economic front, the core CPI data released yesterday was largely in line with expectations (actual & consensus: 0.2%), while the empire manufacturing data beat estimate (actual: 16.4, consensus: 15.0). 2y note lost 7.7bps to 1.30%, while the 10y bond slipped to 2.49% (-10.7bps). The US Dollar Index lost 0.94% yesterday to 100.74.
¨ The Asian credit market was rather stable yesterday as the investors stayed on sidelines ahead of the FOMC policy decision. The iTraxx AxJ IG tightened marginally to 93.3bps (-0.3bps), with Malaysia, Indonesia and Philippines as the best performing countries. The IG space picked up 1.3bps to 171.6bps, while the HY credit spreads moved in different direction, fell by 1.0bps to 6.63%.
¨ The primary market was quiet with only one offering from a Chinese corporate, Fujian Zhanglong Group Co., Ltd (NR/NR/BB+). The company tapped an additional USD200m from its USD 2019 bond facility at 4.8%, a reoffer price of 99.233.
¨ In the rating space, Moody’s changed the negative outlook on West China Cement Limited (WCC) to stable, affirming its rating at B1. This action was to reflect an improvement in WCC’s financial strength as a result of the higher cement prices in its key markets. Higher earnings lifted WCC’s EBITDA and the company’s debt/EBITDA ratio improved from 4.0x in 2015 to 3.0x in 2016.
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