BNM Liberalizes FX Hedging, Introduces Short-Selling of MGS

17 April 2017

Credit Markets Weekly

BNM Liberalizes FX Hedging, Introduces Short-Selling of MGS

SUMMARY:

¨      MYR Credit Market: Local govvies ended firmer amid stronger MYR. MGS rallied along with the USTs amid geopolitical concerns on the global front as well as Trump’s preference for lower yields environment. Sentiment further improved with the strengthening of the MYR after BNM came out with additional hedging flexibility for investors in relation to FX hedging while streamlining processes, effective 2-May. BNM also will allow short selling of the MGS with at least MYR2bn outstanding, to promote liquidity of the bond market, facilitating better price discovery process and correction in any pricing anomalies. A consultation paper to propose the inclusion of GII for short-selling activities will also be issued by the central bank moving forward.

Corporate News – Weekly trading volume totalled MYR1.26bn. More than half of the trading flows were concentrated in <3 years maturity bracket. Cagamas (AAA) issued MYR100m during the week, at 3.80-3.90% for 1y-1.5y tenure. YTD primary issuance amounted to MYR32.5bn, or 38% of FY16 total issuance.

¨      APAC USD Credit Market: Demand for safe haven assets surged amid mounting geopolitical concerns. UST yields declined sharply by 8-16bps WoW amid worries i.e. French political risk and tensions involving Russian and North Korea and probably the overreaction on President Donald Trump’s comments last week; Asian bond markets widened; APAC primaries remain busy despite the Holiday week with USD6.5bn deals priced.

Rating Actions – Moody’s revised Yanzhou Coal’s outlook from negative to stable, affirming its rating at B2; Moody’s upgraded Indika Energy Tbk (PT)’s LT rating from Caa1 to B2; Fitch revised PT Pelabuhan Indonesia III (Pelindo III)’s outlook from positive to stable, affirming its rating at BBB-

Table 1: Index Weekly Movements

Indices	14-Apr	7-Apr	Weekly Chg (bps)
iTraxx AxJ 5y IG	101.3	96.1	5
AxJ IG Spread (bps)	177.6	173.4	4
AxJ HY (%)	6.41	6.5	-9
SOR 2y (%)	1.47	1.53	-6
SOR 5y (%)	1.95	2.01	-7
Malaysia 5y CDS	115.2	109.3	6
MGS 3y (%)	3.33	3.49	-16
MGS 5y (%)	3.80	3.81	-2
MGS 7y (%)	3.97	4.04	-7
MGS 10y (%)	4.10	4.13	-3
AAA 5y Spread* (bps)	53	51	2
AAA 10y Spread* (bps)	60	56	4
AA 5y Spread* (bps)	89	87	2
AA 10y Spread* (bps)	95	94	1

Source: Bloomberg, BNM, RHBFIC        *MYR-denominated bonds

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