20 April 2017
Credit Markets Update
Higher Oil Prices Push Malaysia’s Inflation to 8 Years High
MYR Credit Market:
¨ Govvies closed near to previous level. Trading volume totalled MYR2.1bn with investors remained focused in the short-to-belly of the curve. Little change in benchmark yields with the 5y, 7y and 10y MGS settled -1bp to +1bp at 3.78%, 4.00% and 4.11% respectively, although the 3y MGS fell 4bps to 3.46% amid stronger MYR of 4.401/USD.
¨ Higher inflation in Malaysia. The headline inflation picked up further to 5.1% in Mar (Feb: 4.5%), the quickest pace since Nov-2008, driven by higher fuel prices compared to the year earlier. Looking ahead, our economists expect inflation rate to increase to 3.0% for 2017, from 2.1% in 2016, on the back of higher fuel prices, rationalization of the subsidies, higher business costs as well as imported inflation from weak MYR.
¨ Top traded corporate bonds also ended flattish. Trading volume improved 47% to MYR408m, compared to the day earlier. Top traded was PASB 6/17 with MYR130m ended flat at 3.48%. Other top traded also moved sideways – KLK ’26 was unchanged at 4.63% on MYR50m trades; Digi ’24-27 settled at 4.48-4.60% (unchanged to -2bps); while LPPSA ‘22 declined 1bp to 4.14%. Elsewhere JEP ’21-22 ended firmer at 4.52-4.57% (-1bp to -9bps).
APAC USD Credit Market:
¨ UST bear steepened. 2y note gained 1.6bps to 1.18% while the 10y bond yield closed at 2.21% (+4.6bps) as April’s Beige Book showed that the U.S. economy expanded at a modest-to-moderate pace from mid-February to the end of March. The U.S. Dollar Index advanced to 99.74 (+0.24%).
¨ Over in Asia, iTraxx AxJ tightened marginally to 102.1bps (-0.3bps), with Swire Pacific Ltd, Singapore Telecommunications and Reliance Industries Ltd as the best performers in the constituent. The IG space picked up 1.1bps to 185.0bps, while the HY stayed firm at 6.39%.
¨ In primaries, ICBC Singapore (issue rating: NR/A/NR) raised USD2bn across two-part bonds (refer to Table 2). Elsewhere, Times Property (issue rating: B2/B/B+) priced USD225m 5NC3 bond at 5.75% compared to its IPT at 6% area. The issuance garnered high demand, with BTC of 4.9x.
¨ In the rating space, S&P revised ENN Energy’s outlook from stable to positive, affirming its rating at BBB. This is to reflect S&P’s view that the company’s credit metrics are likely to improve on the back of higher profitability. Its FFO-to-debt ratio is expected to increase from 28.6% in 2017 to 31.6% in 2019, approaching the upgrade trigger of 32%.
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