19 May 2017
Credit Markets Update
MGS Trades Falls; Markets Eye Malaysia 1Q17 GDP
MYR Credit Market:
¨ MYR and MGS continue to fall. Following the weakness yesterday the MYR weakened -0.10% to 4.3280/USD. The MGS curves continued to weaken, as the Malaysian govvies yield spiked across the board. The 3y MGS yields spiked 2.7bps to 3.33% whereas the 10y MGS rose 1.2bps to 3.94%. This followed the risk-off sentiment globally continuing to pressure Asian currencies and supporting safe haven assets. The recent rally in risk assets in the US overnight following the effects of better economic data, rally in oil prices, and as concerns on the administration in the US was allayed slightly, which should halt the pressures on EM yield curves.
¨ Govvie trades fall while corporate trading improves. Trading of Malaysian govvies fell again to the lows of MYR1.7bn only changing hands. This following, the large issuance of CIMB Bank bonds overnight and the recent take-up of the 10.5y benchmark MGS bonds issued. Trading in the corporate bond space however remained robust with a strong MYR618m changing hands. Banking names saw increased interest as CIMB T2 21s callable bonds falling to 5.28% (+23.7 bps), AFFINBANKs subdebt 22s callable bonds unchanged at 5.11% (-0.7bps) and PUBLIC subdebt 10/18 callable bonds rallying to 4.34% (-4.3bps).
¨ GDP and CAB will be closely watched. Market will be focused on the coming 1Q17 GDP numbers to be published later today. Numbers are expected to be stronger in light of the rally in regional export numbers in the quarter. The current account balance for 1Q17 will also be watched to appreciate the effect of the recent FX administrative measures introduced by BNM in December 2016.
APAC USD Credit Market:
¨ UST yields traded higher as risk-off sentiment receded; 2y rose 2.2bps to 1.27%, while 10y note remained largely unchanged at 2.23% (+0.5bps) buoyed by the release of better-than-expected economic data – initial jobless claims data was lower at 232k (consensus: 240k), Philadelphia Fed Business Outlook came in at 38.8 (consensus: 18.5). The U.S. Dollar Index advanced to 97.88 (+0.31%). Separately, Brent price was higher as well, closed at USD52.51/bbl (+0.57%) on optimism that OPEC and other big producers will extend production cuts.
¨ Underperformance in Asian credits amid the US political turmoil. IG credit spreads climbed to 180.4bps (+5.4bps); the HY space stayed firm at 6.55% (+0.5bps). Elsewhere, the iTraxx AxJ IG widened by 3.3bps to 94.0bps. Banks continued to be the worst performers in the constituent (i.e. IDBI Bank Ltd, Kookmin Bank and China Development Bank).
¨ Moving on to rating actions, S&P upgraded China Evergrande Group’s rating from B- to B as a result of the company’s improved liquidity on the back of better sales performance. Its EBITDA margin increased to 20.9% in 2016 (18.5% in 2015). Moody’s expects the ratio to improve to 23% in the next 12 months due to the recognition of higher-margin projects sold in the past two years.
¨ Lastly on new supply, Amber Treasure Ventures Ltd (issue rating: Baa2/NR/NR, guarantor: Nan Hai Corporation Ltd) sold USD500m 3NC1.5Y bond at par to yield 3.00%, its IPT was at T+180bp area.
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