US Treasuries traded in a curve-steepening trend yesterday as risk-on sentiment continued with Macron’s victory in the French presidential run-off, and investors await higher US IG issuance in coming weeks. 2y UST note rose to 1.33% (+2.0bps); 10y bond

9 May 2017

Credit Markets Update

                                               

Foreign Holdings Trend Reversed in April

MYR Credit Market:

¨      MGS market resumes flattening trades. The MGS yield curve continued its flattening cycle despite the fall in global yields. The 10y-MGS rallied 1.1bps to 3.94%, still remaining firmly below 4%. The 3y-MGS saw yields rise 6.6bps to 3.31%. We also saw MYR strengthen against the greenback closing at 4.3360/USD (0.06%).

¨      Trading activity moribund once more. A mere MYR2.9bn govvies changed hands. An increased interest was seen in the belly of the curve where MGS 09/25 and 11/26 saw large trades accounting for 36.8% of total trades done for the day. Corporate trades were weak as well as only MYR111m were traded. Among the top traded were JEV 11/21 and BOUSTED 11/17 both rallying -17.2bps and -1.2bps respectively.

¨      Foreign inflows into govvies after 5-month selldown. The latest report on foreign holdings of MGS and GII revealed that there was an inflow of MYR6bn, reversing a 5-month selldown in this asset class since Nov-17. This new increase now bring foreign holdings to 40.1% of total MGS holdings and 26.8% of all govvie issuances outstanding.

APAC USD Credit Market:

¨         US Treasuries traded in a curve-steepening trend yesterday as risk-on sentiment continued with Macron’s victory in the French presidential run-off, and investors await higher US IG issuance in coming weeks. 2y UST note rose to 1.33% (+2.0bps); 10y bond yield climbed to 2.39% (+3.8bps). Elsewhere, Cleveland Fed President Mester (non-FOMC voter) advocated for more rate hikes as economy grows. The probability of rate hike increased to 100% from 93.8% on last Thursday (May 4). The DXY index edged up to 99.06 (+0.42%).

¨         The Asian market traded sideways. The iTraxx AxJ IG was quoted at 91.4bps yesterday (-0.8bp), with lower CDS spreads seen in Reliance Industries Ltd, KT Corp and Bank of India. The IG credit spreads were largely unchanged at 173.5bps (+0.4bps), while the HY space declined to 6.42% (-2.0bps).

¨         In the primary market, Bank of Communications Co. Ltd (Hong Kong) (issue rating: A2/A-/NR) priced two tranche bond – i) USD700m 3y floating bond at 3mL + 78bp, ii) USD300m 5y floating bond at 3mL + 88bp. Woori Bank (issue rating: Ba3/NR/BB+)  sold USD500m Pnc5 AT1 at 5.25%, its IPT was at 5.5% area. The issuance garnered strong demand, with BTC of 3x. Elsewhere, Indonesia’s PT Perusahaan Listrik Negara (issue rating: Baa3/NR/BBB-) raised USD2bn across two parts (refer to Table 2).

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