25 May 2017
Credit Markets Update
FOMC Minutes Disappoints; Markets Brush Off China Rating Cut
MYR Credit Market:
¨ MYR and MGS brushes off the China downgrade. The downgrade of China’s rating by Moody’s had little effect on most of EM Asia’s assets. The MYR followed the same shift as it retraced early reactions to end largely unchanged at 4.2930/USD (+0.01%). The MGS saw some profit taking as the 5y, 7y and 10y MGS ended the day higher at 3.57%, 3.80% and 3.88%, rising 1.8bps, 0.8bps and 1.5bps respectively, ahead of the release of the FOMC minutes. The results of the FOMC had been more dovish than many expected with little insight on a June hike. This should be supportive of yields and the MYR as the OPEC, which is to conclude today is expected to be further supportive of commodity exporters.
¨ Trading weaker after a strong performance. Trading in Malaysian govvies fell to MYR2.0bn traded. Trading was once more largely concentrated on the short end of the curve, as the 17s, 18s and 19s contributed to MYR224m, MYR317m and MYR637m respectively, accounting for more than half of all government bond trades. Trading in corporates remained strong as MYR365m changed hands. Most trades were concentrated in infrastructure names as PASB 16/06/17 saw MYR100m change hands while the recently issued YTL Power 27s saw another MYR40m, each traded at 3.43% (-5.1bps) and 4.98% (-0.4bps) respectively.
¨ DanaInfra prints MYR4.5bn bonds. DanaInfra’s large issuance of sukuks which closed last week saw 7 tranches totalling MYR4.5bn issued after MYR2.68bn was issued in March. Maturities issued were for 5y, 7y, 10y, 15y, 20y, 25y and 30y with MYR750m, MYR700m, MYR500m, MYR700m, MYR350m, MYR780m and MYR720m respectively issued. Yields were issued lower compared to the issuance in March for the 5y-15y maturities where yields were 6bps to 19bps lower. The longer maturities of 25s and 30s saw higher yields between 7bps to 10bps, on the back of a noticeably heavier issuances at these maturities.
APAC USD Credit Market:
¨ Treasuries flattened across the curve on the back of the May Fed meeting minutes which indicated the cautious approach to interest rate hikes and the broad agreement to taper the Fed’s balance sheet by halting the reinvestment of principal of maturing securities. Futures implied pricing puts the June hike still firmly at 100%. Benchmark 2y UST yields declined 2.1bps to 1.28%, while the 10y slide 3.0bps to 2.25%. On the data front, Apr existing home sales was weaker than expected at -2.3% MoM against expectation of -1.1% to 5.57m. Later today, investors will turn their attention to the OPEC meeting at Vienna.
¨ Asian bond markets held steady; with muted impact on credits following the China downgrade. IG credit spreads were marginally tighter at 174.8bps (-0.7bp), while average non-IG bond yields gained another 1bp to settle at 6.62%. Moving to the CDS space, the iTraxx AxJ IG was quoted slightly wider at 90.264, with little changes across most constituent members; China sovereign CDS compressed -0.6bps.
¨ The primary market was relatively quiet, with only one new issuance from CNRC Capital Ltd (issue rating: Baa2/NR/BBB+, guarantor: China National Chemical Corp). The company priced USD600m perp NC5 at 3.9% against its IPT at 4.2% area.
¨ Moody’s downgraded the ratings of 26 Chinese government-related issuers (GRIs) by one notch from their previous ratings following the sovereign downgrade (refer to Table 3). Elsewhere, S&P revised PT Chandra Asri Petrochemical Tbk’s outlook from positive to developing (affirming its rating at B+) as concerns grew on the parent company PT Barito Pacific Tbk’s leverage. The parent company’s debt increased to USD685m at end-Mar 2017 (USD537 at end-2016).
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