Credit Market Watch: Summary for week ending 26-May
· MYR Credit:
Ø MGS curve flattened a tad WoW as the Ringgit extended its gain against the USD. The USDMYR pair came below the 4.30 level, the strongest since the selloff in November. Front to belly MGS were little changed but long-end yields dropped 3-5bps along the 15y20y as this laggard part of the curve played catch-up.
Ø In the corporate bond market, trading interest was moderate in the secondary market. Primary segment continued to see new issuances coming to the market to price new bonds taking advantage of the lower MGS curve. PASB priced MYR2.1b government-guaranteed bonds with 3y, 5y and 7y tenors. Bank Rakyat raised MYR1.2b via AA-rated Imtiaz Sukuk II with 3y and 5y tenors.
Ø Relative value: UEMS offered pickup over the AA3 curve with both the UEMS’21 and UEMS’22 11bps wide from our fitted line. UMW Holdings, which suffered a 2-notch downgrade last year due to substantial deterioration in earnings and credit profile amid losses in O&G segment and competitive landscape in its automotive sector, continued to offer approx. 25-30bps pickup over similarly rated peers.
· Asian Credit:
Ø UST yields were little changed as the upward revision of 1Q17 GDP growth from 0.7% to 1.2% didn’t move the market much – as it basically reiterates the fact that it remained a weak growth in 1Q. The 10y UST yield inched up 1bp to 2.25%. This week will see the release of May’s jobs data with surveys pointing to 185k change in nonfarm payrolls (Apr: 211k), wage growth of 2.6% YoY (Apr: 2.5%) and unemployment rate unchanged at 4.4%.
Ø Asian USD credits were slightly wider with JACI composite +1bp, JACI IG flat and JACI HY +3bps WoW. Sovereign curves were 1-5bps higher WoW except for the MALAY curve which fell 2-5bps.
Ø Rating change: China’s sovereign rating was downgraded by Moody’s from Aa3 to A1, citing concern over rising economy-wide debt which the agency expect to continue in the coming years. Growth, while robust and above similarly rated peers, is partly tied to policy stimulus, which could contribute to the increase in debt in the economy. Meanwhile, Moody’s also downgraded 26 government-related issuers within its rating universe, among which include China Mobile Ltd, CNOOC, CNPC, Sinopec, China Shenhua, Beijing Automotive, Guangzhou Metro, China Southern Power, China Three Gorges and State Grid Corporation.
· CDS: EM Asia 5y CDS spreads saw mixed performance with China, Korea and Malaysia 2-4bps tighter while Indonesia and Philippines 2bps wider WoW.