Friday, May 12, 2017

UST rebounded; Treasuries continued to backtrack on the underperformance in US equities and the soft UST 30y auction, which garnered low

12 May 2017

Credit Markets Update
MGS continues to trade flat as BNM meets
MYR Credit Market:
¨      MGS continues to trade flat as BNM meets. The MGS curve rallied in the short end of the curve, where the 3y MGS rallied -3.1bps to 3.28%, though most of the curve continued to trade flat. The 10y MGS closed at 3.95% (-0.3bps). This occurred as global yield curves started to pick up once more in preparation of the Fed rate hike in June. BNM is scheduled to meet today, with expectations remaining high of a maintenance of the OPR, despite the spike seen in the latest CPI readings.
¨      Trading remained thin. Coming off a public holiday, trading remained thin, with only MYR2.4bn changing hands in the Malaysian govvie market. Close to half the trades occurred in the short end of the curve (MYR1.1bn) where maturities of 17s-20s continue to be well traded. The corporate bond market saw weaker trades of MYR200m. Among the major traded names were the subdebt of Affin ‘02/27, the short dated PKNS 18s and both Khazanah ‘22s. The Affin 02/27 was traded at 5.12% (+3.9 bps) whereas the PKNS ‘18s 4.36% (-9.3bps). Both issues of Khazanah 22s were traded stronger (-4.2bps to -4.5bps) at 4.11% and 4.13% respectively.
¨      Over in the primaries, Swift Haulage issued 15y MYR106.9m unrated, convertible bond, callable in 06/17. The new auction of the benchmark 10.5yr MGS 11/27 has been announced and will close on Tuesday. The announced auction size is MYR3bn with expectations of up to MYR1bn additionally privately placed.
APAC USD Credit Market:
¨         UST rebounded; Treasuries continued to backtrack on the underperformance in US equities and the soft UST 30y auction, which garnered low BTC of 2.19x, which is the lowest since Nov-16. 2y UST yields slipped 2bps to 1.33%; 10y closed almost 3bps lower at 2.39%. On economic data, Apr PPI rose 0.5% compared to consensus at 0.2%, while initial jobless claims declined to 236k against 245k expected.
¨         Asian credits remained mostly stable. The iTraxx AxJ IG spreads tighten further to 88.9bps (-0.9bp); PETMK CDS spreads declined 5bps overnight, while Korean related credits continue to trade lower. IG credit spreads were fairly firm at 171.7bps whereas average HY bond yields inched 2.1bps higher to 6.47%. NOBLSP ‘18-’22 yields surge another 5-6ppt wider on S&P’s remarks that the commodity trader’s high debt load is unsustainable given its current earnings path.
¨         Active primaries; Cheung Kong Property Holding Ltd (A2/A-/A-) via its subsidiary Radiant Access Ltd (A2/NR/NR) received over USD6.9bn orders for its USD1.5bn Pnc3 bonds priced at 4.60% (IPT at 5%). Bank of East Asia (issue rating: Ba2/BB/NR)’s USD500m AT1 bonds were oversubscribed 7.4x, closed at 5.625% against IPT at 6% area. Elsewhere, Huachen Energy (B1/NR/NR), a Chinese utilities-linked company, priced USD500m bonds at 6.625%, 37.5bps inside IPT.

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