MGS yield curve moved 1-2bps lower WoW along the 5y-15y, with the 10y MGS yield down 2bps to 3.86%. Of note, there was improved interest in extending duration. The USDMYR pair continued to trend downwards to the 4.26 level. Corporate bond market was relatively subdued posting MYR1.9b volume, though there was increased interest in AA bonds

Credit Market Watch: Summary for week ending 9-Jun

·         MYR Credit:

Ø  MGS yield curve moved 1-2bps lower WoW along the 5y-15y, with the 10y MGS yield down 2bps to 3.86%. Of note, there was improved interest in extending duration. The USDMYR pair continued to trend downwards to the 4.26 level. Corporate bond market was relatively subdued posting MYR1.9b volume, though there was increased interest in AA bonds.

Ø  Rating highlights: The week saw preliminary ratings for the first two solar power plant related sukuk in Malaysia. RAM has given Sabah-based Tadau Energy Sdn Bhd’s (Tadau) 50MWac solar power plant project a rating of AA3 and Quantum Solar Park (Semenanjung) Sdn Bhd’s (QSP Semenanjung) 150MW solar power plant project received a AA- rating from MARC. Tadau is looking to raise up to MYR250m while QSP Semenanjung is planning up to MYR1b, given its larger total capacity.

Ø  Relative value: DiGi still seem to have value with the 2024 bond trading 10bps wider than Telekom 2024 and also 3bps wide from our fitted line. Bumitama also has value with the 3/19 being 9bps over the fitted AA3 curve and 19bps above BGSM 12/18. While CPO price has been declining of late, Bumitama’s young estate will continue to support a strong crop production.

·         Asian Credit:

Ø  UST yield curve shifted 4-5bps higher WoW along the 2y10y, with the 10y UST yield up 4bps to 2.20%. Treasuries softened on a combination of supply pressure from the 3y and 10y auctions and some position adjustments before this week’s FOMC meeting. With implied probability of a rate hike at 97.8%, focus will be on the Fed’s dot plot projections and details on balance sheet reduction. May CPI data will be out on Wednesday and a stronger than expected print could lift UST yields.

Ø  In Asian USD credits, JACI composite and JACI IG stayed flat, while JACI HY tightened -2bps WoW. Sovereign names outperformed with the curves down by 2-5bps WoW.

Ø  Rating change: Moody’s lowered Reliance Communications’ rating further to Ca from Caa1 with a negative outlook. Reliance has formed a Joint Lenders’ Forum (JLF) in relation to a proposed debt restructuring plan. These actions indicate Reliance’s likely inability to pay upcoming maturing debt obligations as well as the agency’s belief of possibly failed interest payments. The negative outlook reflects uncertainty surrounding the debt restructuring execution, cash flow generation capability and creditors’ recovery prospects.

·         CDS: EM Asia 5y CDS spreads all tightened led by Malaysia -6bps, followed by China -5bps, Indonesia -3bps, Korea and Philippines -2bps each and Thailand -1bp WoW.