Monday, May 22, 2017

Ø MGS rallied with the yield curve moving 2-6bps lower WoW. The bullishness in govvies extended to the corporate bond space as yields declined 1-2bps WoW across the board and volume traded increased to MYR2.2b.


Credit Market Watch: Summary for week ending 19-May
·         MYR Credit:
Ø  MGS rallied with the yield curve moving 2-6bps lower WoW. The bullishness in govvies extended to the corporate bond space as yields declined 1-2bps WoW across the board and volume traded increased to MYR2.2b.
Ø  1Q17 GDP +5.6%: Malaysia’s GDP expanded 5.6% YoY in 1Q17 (4Q16: 4.5%) on the back of a pick up in domestic demand and export/import growth which accelerated to 7.7% (4Q16: 3.3%) and 9.8%/12.9% (4Q16: 1.3%/0.7%) respectively. Supply side sectors all reported a pick up in growth as well. With firmer domestic demand growth and subsiding macro pressure, our economic research team has raised 2017 GDP growth forecast to 5.1% (4.4% previously).
Ø  Relative value: MACB 12/22 seem to offer value as it was last dealt at 4.35% vs similar tenor PLUS 1/23 and Telekom 12/22 which are trading around 4.24-4.25%.
·         Asian Credit:
Ø  UST yield curve tightened further by 2-9bps WoW amid negative US political headlines regarding Trump’s alleged interference with FBI Comey’s investigation of Flynn and Russia. The 10y UST yield broke below 2.20% before rebounding slightly to end the week at 2.23% (-9bps WoW).
Ø  Asian USD credits widened with JACI composite +6bps and JACI IG and JACI HY each +4bps WoW. Sovereign curves tightened led by INDON which lowered 5-10bps WoW while others generally lowered 2-6bps.
Ø  Rating change: S&P has finally upgraded Indonesia’s long term sovereign rating from BB+ to BBB-, and the rating is now aligned with that from the other two rating agencies. S&P opines fiscal risks have lessened following effective and realistic budgeting measures such as tax amnesty and subsidy reforms. With better revenue collection and controlled fiscal spending, the agency expects budget deficit to stay <2.5% and for net debt to remain moderate (<30% of GDP). Along with the sovereign upgrade, ratings of 7 government-related entities/corporates were raised by one notch as well.
·         CDS: EM Asia 5y CDS spreads were mostly +1-2bps wider except for Indonesia which outperformed tightening -5bps WoW on the back of its sovereign rating upgrade.

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