Wednesday, April 19, 2017

UST curve continued to flatten dragged lower by the i) on-going geopolitical tensions (French political concerns and North Korean crisis), ii) the snap UK elections; and the iii) weaker set of US economic data i.e. Mar housing starts at 1,215

19 April 2017


Credit Markets Update
                                               
Cagamas Priced USD350m 3y Bond at 2.53%
MYR Credit Market:
¨      Quiet government bond market amid lack of investment catalyst. Liquidity was thin yesterday with MYR1.6bn changing hands in the govvies market as investors still remain concerned of global geopolitical uncertainties – North Korea, Syria and a tight French presidential election this Sunday (23-Apr), before UK’s Prime Minister Theresa May announced snap general elections on 8-June in attempt to strengthen her political support in the negotiation for Brexit. Benchmark MGS ended flat +5bps with the 3y spiking 5bps higher to 3.38%, while the 10y rose 2bps to 4.11% as MYR weakened 0.15% to 4.411/USD.
¨      Slower corporate flows. Trading volume was 40% lower at MYR278m, compared to the day earlier. Rantau ’22 fell 3bps to 4.25% on MYR50m trades. Meanwhile, government guaranteed bonds ended flat to -3bps from PASB ’19-21 and newly issued LPPSA ’22-47. Other bonds traded were HLBANK T2 ’24c19 declined 10bps to 4.47%, while Telekom ‘24s closed at 4.38-4.39% (-2bps to +1bp).
APAC USD Credit Market:
¨      UST curve continued to flatten dragged lower by the i) on-going geopolitical tensions (French political concerns and North Korean crisis), ii) the snap UK elections; and the iii) weaker set of US economic data i.e. Mar housing starts at 1,215k (consensus: 1,250k). UST 2y slumped to 1.16% (-4.1bps), while the 10y slipped below 2.20% to c.2.17 (-8.2bps overnight).
¨      Asian bond markets traded mostly unchanged. IG spreads were flat at 183.9bps, whereas average HY bond yields widened 1bp to 6.4%. Asian IG CDS continued rising amid the dampened sentiment to settled at 102.7bps with the biggest underperformer being Chinese banks namely China Development Bank (+6.4bps) and Bank of China (+3.3bps).
¨      In the primaries, Korea Resources (A1/A+/NR) received poor demand for USD425m 5y notes priced at T+130bps (IPT+140 area), garnering low BTC of c.1.2x. Locally, Cagamas Global PLC (A3/NR/NR) guaranteed by Cagamas Berhad (A3/NR/NR) sold USD350m 3y bonds at T+115 (IPT+125bps).
¨      Over to rating action, China Metallurgical Group (CMG) upgraded by Moody’s to Baa2/Sta from Baa3 premised on expectations that the group’s financial leverage will improved over the next 12-18 months backed by steady revenue growth, improved earnings and reduced debt levels. CMG’s debt/EBITDA is anticipated to decline to 5.0-5.5x from a 6.2x in 2016.


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