13 April 2017
Credit Markets Update
5y New GII 4/22 Today; Treasury Rallies Further on Trump’s Comments
MYR Credit Market:
¨ Mixed flows in the govvies. Better flows in the government bond market with MYR2.2bn changing hands, compared to c.MYR1bn/day in the previous 2 days. MGS curve flattened as 3y yields rose 3bps to 3.49% while 10y fell 2bps to 4.12%. The 7y conventional benchmarks on MYR310m trades was the most active, closing flat at 4.04%. The auction for the MYR4bn 5y New GII 4/22 is scheduled to close today where the WI seen quoted tighter at 3.97/3.96% yesterday. The MYR, meanwhile, strengthened against the greenback for the 2nd consecutive day to 4.429 (-0.11%).
¨ Trading activities increased 43% to MYR460m, compared to the day earlier. Among the top traded, Khazanah ’20 ended flat at 4.03%. Other GG names ended mixed – DanaInfra ‘21s closed at 4.06-4.07% (-1bps to +4bps), and PASB ‘26 spiked 12bps to 4.39%. Over in banking names, Public Bank 4/18 fell 2bps to 3.98%, while Public 4/19 readjusted 18bps higher to 4.17% from July-16 level.
¨ Over the primary market, Cagamas (AAA) issued MYR100m 1y-1.5y MTN at coupon of 3.80-3.90%.
APAC USD Credit Market:
¨ UST extends rally; 10y UST yields declined sharply to 2.24% (-5.7bps), while the 2y slipped 3.2bps to 1.20% following i) Trump’s comments for lower interest rate and a weaker USD as the DXY plunged to 100.05 (-0.72%); ii) growing geopolitical tensions and iii) uninspiring US Treasury USD12bn 30y notes auction which recorded a BTC of 2.22x.
¨ Credit markets widened with pressure on IG spreads, rising approximately 3bps to 180bps amid the soft market environment, while speculative bond yields were unchanged at 6.4%. Asian IG CDS protection cost edge higher (+1bp) to 98.9 led by commodities linked credits in KEPCO, PETMK and CNOOC Ltd.
¨ CCB Life Insurance Company Ltd (issue rating: Baa3/BBB/NR) sold USD500m 60NC5 bond at 4.5% against its IPT at 4.8%. Nuoxi Capital Ltd (NR) priced USD300m 3y bond at 4.6%, compared to its IPT at 5% area, with BTC of 13.3x.
¨ In the rating space, S&P upgraded Barminco Holdings’ LT rating from B- to B following a successful new issuance of USD350m. It removes refinancing pressure over the next 12 months and the company’s profitability was stable amid industry downturn. S&P expects Barminco’s earnings to rise on the back of new contracts at Western Australia and India.
¨ S&P also revised Hydoo International Holding Ltd’s outlook from stable to negative, affirming its rating at B. This is to reflect S&P’s expectation that the company’s financial leverage to remain elevated in the next 12-24 months. Its debt-to-EBITDA ratio increased to 5.4x in 2016 (3.4x in 2015). Elsewhere, Fitch revised PT Pelabuhan Indonesia III (Pelindo III)’s outlook from positive to stable, affirming its rating at BBB-. The company’s outlook was revised to positive previously mainly due to the revision of Indonesia’s sovereign rating from stable to positive. The change of outlook to negative now reflects the expectation that the company’s credit metrics will remain weak over the next 2-3 years as a result of lower-than-expected margins and higher-than-expected capex. Fitch expects its FFO-adjusted net leverage to be around 5.8x-6.0x in 2018-2020.
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