23 May 2017
Credit Markets Update
MYR Sees New Highs; Noble Plunge Deeper into Junk Territory with S&P
MYR Credit Market:
¨ MGS rallies as MYR sees new highs. Following a few days of weakness, the MYR saw a surge as it closed at 4.3045/USD, gaining 0.39% from Friday’s close. This rally is expected to continue over the week, as a global risk-on is taking hold in global markets, buoying asset prices in most of EM Asia and oil prices continue to be supported. The MYR reached new highs for 2017. The MGS curves were also well supported as the 3y MGS rallied to 3.33% (-3.9bps) and the 10y MGS closed at 3.93% (-0.6bps).
¨ Govvie trades weaken further while corporate trading improves. Trading of Malaysian govvies weakened further to only MYR993m. Trading in the corporate bond space however saw MYR428m being traded. Majority of the trades were concentrated on two names, namely the Maybank subdebt maturing on 27/10/2025, rallying -12.4bps to 4.88% and the Prasarana 27s which saw yields fall to 4.43% (-10.2bps). Over in the primaries, YTL REIT is about to issue MYR65m 5y bonds from its existing MYR1.65bn facility.
¨ Reserves continue to improve. Over in the economic front, BNM reported the latest FX reserves at USD97.3b as of the 15th of May, from USD96.1b reported a fortnight before.
APAC USD Credit Market:
¨ UST traded in a steepening trend across the curve as risk-on sentiment resumed. US equities advanced as market celebrated President Trump’s USD350bn arms deal with Saudi Arabia. Brent price extended last week’s gain to USD53.87/bbl (+0.48%). UST 2y note picked up 1.2bps to 1.28%, while the 10y note climbed to 2.25% (+1.9bps). On the other hand, the U.S. Dollar Index continued to on its descent, slipping to 96.98 (-0.16%).
¨ Asian credit market traded sideways. IG credit spreads tightened by 1.1bps to 175.3bps, while the HY space tacked 2.0bps higher to 6.59%. The iTraxx AxJ IG index trickled to 90.8bps (-1.3bps), led by Woori Bank (-4.4bps), Samsung Electronics Co Ltd (-4.4bps) and Bank of China (-2.5bps).
¨ Over to rating actions, Noble’s woes continued; falling deeper into junk territory as S&P slashed the commodity trader’s rating from B+ rating to CCC+, with negative outlook. Largely premised on weak expected cash flows generation and heightened refinancing risk. S&P expects Noble’s liquidity to stay weak in the next 12 months, with three major maturities due by the end of 2018, totalling up to USD2.1bn. Elsewhere, Moody’s and Fitch assigned first-time rating to PT Agung Podomoro Land Tbk (APL), at Ba3 and BB- respectively. The company is well-diversified across multiple property segments, hence an established presence in Jakarta. Moody’s expects APL’s homebuilding EBIT/interest expense to stand at approximately 3.5x, while Fitch expects leverage to increase marginally to around 34%-35% over the next 12-24 months as a result of expansion of investment plan.
¨ In the primary markets, MCC Holding (HK) Corp Ltd (issue rating: Baa2/NR/NR, guarantor: Metallurgical Corp of China Ltd) priced USD500m 3y bond at T+155bp, garnering strong demand, with BTC of 8.2x. Nan Fung International Holdings Ltd’s financing arm, Nan Fung Treasury (II) Ltd (issue rating: Baa3/NR/NR) sold USD500m Pnc3 bond at 5.5% or 20bps inside IPT.
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