China Downgraded by Moody’s; Prices Largely Unmoved

29 May 2017

Credit Markets Weekly

China Downgraded by Moody’s; Prices Largely Unmoved

SUMMARY:

¨      MYR Credit Market: MGS and MYR sees new highs. The MYR continued to rally over the week, as it hit a new high of 4.2688/USD (+1.2% WoW) for the year. This rally occurred as a global risk-on in the market took hold, supported by the release of the recent Fed FOMC Meeting which was more dovish than expected with little insight on a June rate hike, buoying asset prices in most of EM Asia and commodity prices. This was further supported by positive news flow in the commodity space prior to the OPEC meeting during the week.

Corporate News – Primaries surged with DanaInfra and Putrajaya. Over the week, DanaInfra Nasional Berhad issued a total of MYR4.5bn of bonds in seven GG tranches with maturities of 5y, 7y, 10y, 15y, 20y, 25y and 30y respectively. Yields of the issuances were lower compared to its recent March issuance for 5-15y maturities but the longer maturities of 42s and 47s saw higher yields between 7bps to 10bps, on the back of noticeably heavier issuances at these maturities. Putrajaya printed another MYR500m split among tranches of 8y and 9y, with spreads 69-79bps above the current 7y benchmark yield.

¨      APAC USD Credit Market: UST traded in a flattening trend last week, yields increased by 1 to 3bps WoW despite the May Fed meeting minutes indicated the cautious approach to rate hikes. Investors were also on the side-lines given the Memorial Day weekend as the US bond markets shut early on Friday and remains closed on Monday. 2y UST rose 2.3bps to 1.29%, whereas the 10y note picked up 1.2bps to 2.25%. Asian bond market settled mixed. IG spreads held steady at 176.4bps, whereas average speculative bond yields widened 3bps WoW to 6.60%; Total weekly issuances amounted to USD6.2bn compared to USD9.8bn last week.

Rating Actions – Moody’s downgraded China’s Aa3 rating to A1; Moody’s downgraded the ratings of 26 Chinese government-related issuers (GRIs) by one notch from their previous ratings; Moody’s also downgraded a list of Hong Kong companies to Aa2 from Aa1 following the downgrade on Hong Kong sovereign rating (to Aa2 from Aa1) – MTR Corp Ltd, Kowloon-Canton Railway Corp and Hong Kong Mortgage Corp Ltd. S&P upgraded CLP Holdings to A from A-, whereas both S&P and Fitch slashed Noble Group’s rating to CCC+ and BB- respectively.

Table 1: Index Weekly Movements

Indices	26-May	19-May	Weekly Chg (bps)
iTraxx AxJ 5y IG	90.7	92.5	-2
AxJ IG Spread (bps)	176.4	176.4	0
AxJ HY (%)	6.60	6.57	3
SOR 2y (%)	1.33	1.38	-5
SOR 5y (%)	1.81	1.87	-6
Malaysia 5y CDS	100.2	104.7	-4
MGS 3y (%)	3.29	3.29	1
MGS 5y (%)	3.56	3.55	2
MGS 7y (%)	3.78	3.80	-2
MGS 10y (%)	3.87	3.86	1
AAA 5y Spread* (bps)	74	74	0
AAA 10y Spread* (bps)	80	80	0
AA 5y Spread* (bps)	111	111	0
AA 10y Spread* (bps)	115	115	0

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

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