Relative value: Malaysia Airports 8/20 seem to offer value trading at 4.26% which is 12bps above the fitted AAA line and on par with longer tenor Putrajaya Holdings 12/21. At the same time, PLUS 1/22 appears tight at 4.18%. We remain constructive on MAHB’s credit. MAHB registered strong passenger traffic growth internationally and domestically, which grew

Credit Market Watch: Summary for week ending 5-May

·         MYR Credit:

Ø  MGS curve bull-flattened along the 5y15y and lowered 6-11bps WoW on continued strong buy flows. The 10y yield broke below 4.00% ending the week at 3.96%. Corporate bond yields generally followed suit to tighten WoW, but trading was fairly light. The week saw the maiden establishment of a 30y point on the GII curve with a MYR2.5b issuance of GII 5/47 at an average yield of 4.895%.

Ø  Econs data: External reserves increased to a 5-month high of USD96.1b as at end-April (end-Mar: USD95.4b). Foreigners were net buyers of local equities for a 4th consecutive month in April and while bond foreign flow data is pending, the 1.95% appreciation in MYR against the USD and decline in yields suggest net foreign outflows have likely dissipated or possibly reversed. 1Q17 exports jumped 21.4% YoY while imports rose 27.7% YoY.

Ø  Encorp Systembilt: Rating raised to AA1 from AA2 with a stable outlook by RAM as debt-servicing ability improved, achieving a minimum DSCR of 1.50x in the agency’s stressed case, thanks to a build-up of cash on the back of steady concession payments from the government, investment income and lower expenses.

Ø  Relative value: Malaysia Airports 8/20 seem to offer value trading at 4.26% which is 12bps above the fitted AAA line and on par with longer tenor Putrajaya Holdings 12/21. At the same time, PLUS 1/22 appears tight at 4.18%. We remain constructive on MAHB’s credit. MAHB registered strong passenger traffic growth internationally and domestically, which grew by 9.6% YoY in 1Q17 and this led our aviation analyst to raise 2017 passenger traffic growth forecast to 10% from 8% previously.

·         Asian Credit:

Ø  UST yields rose 5-7bps across the 2y10y as the FOMC statement in May indicates that the Fed views the slowdown in 1Q17 growth being transitory and expects that a gradual tightening in interest rate will not derail the existing momentum in economic growth, jobs market and inflation. Meanwhile, the US nonfarm payrolls in April printed a healthy 211K that beat 190K consensus and unemployment rate dropped to a low of 4.4%, although wage growth eased to 2.5% YoY from 2.7% YoY in prior month.

Ø  Asian USD credits were tighter in spreads with JACI composite -3bps, JACI IG -3bps and JACI HY -5bps WoW. Sovereign names overall tracked the UST performance and were between flat to 5bps weaker in yield on a WoW basis.

Ø  Rating change: Standard Chartered Bank (SCB)’s issuer rating was downgraded to A1 from Aa3 by Moody’s as the agency expects a reduction in the profitability of SCB after the de-risking its balance sheet. Revenue from wholesale banking segment continue to face growth challenges given lower risk appetite. NPL ratio and credit costs, however, are expected to improve.

·         CDS: EM Asia 5y CDS spreads were little changed in the region of +/-1bp WoW.