Moving to new supply; China Construction Bank (A1/A/A) via CCB International Ltd (A1/A/NR) received 2.17x BTC for USD600m 5y bonds priced at T+110bp compared to IPT at T+135bp area, whereas China Everbright Bank/HK (Baa2/NR/BBB) sold USD500m 3y FRN at 3mL+85 (IPT at 3mL+110bp). Chinese property developer - Fantasia Holding Group (B2/B+/NR) taps the market for USD350m bond maturing in June 2018, sold at 5.5% or 25bps inside IPT; garnering solid BTC of 3.7x.

7 June 2017

Credit Markets Update

                                               

Markets Risk Aversion Towards the End of the Week

MYR Credit Market:

¨      Risk and money taken off the table. The previous trading day saw risk and money taken off the table in most markets and asset classes. This occurs as numerous global geopolitical risk events occurs over the week. Among the concerns on the forefront of investors’ minds are the ECB policy decision, the upcoming UK elections, former FBI Director Comey’s congressional testimony, and the strain in the Middle East surrounding Qatar. Though some of these risk factors are expected to be resolved by the end of the week, this should not be supportive of most asset classes in EM Asia. Accordingly, the MYR has started to see a pairing down as it closed at 4.2670/USD, losing -0.1%. The MGS curve weakened especially in the short end where 3y MGS closed at 3.28% (+4.6bps) while the 10y MGS closed at 3.87% (+0.2bps).

¨      Trading weaken as market pauses. Consistent with the global appetite shifts stated above, trading of Malaysian govvies fell to a mere MYR1.8bn changing hands. Again interest was largely drawn to the short end as the 17s and 18s maturities garnered MYR392m and MYR462m of trades. The newly closed MGS 4/37 also saw interest as MYR309m was traded. Trading in corporate bonds were stronger as it saw trading amounting MYR309m. Trades were more widely distributed by sector and by tenor. YTL Power 27s that was recently issued, saw MYR35m traded at 4.98% (-0.2bps), whereas recently traded BKB 23 saw MYR20m traded unchanged at 4.48%. The short dated Aman 05/19 traded weaker at 4.12% (+1.5bps). 

¨      MGS 20y reissuance and PASB closed. The primary market saw the reopening of the 20y MGS 04/37, with MYR2.5bn issued at an average rate of 4.56%. The BTC was at 1.70x. The appetite, though weaker compared to recent auctions showed an improvement compared to the initial auction of the 20y in April where the BTC was 1.59x. Pengurusan Air SPV Berhad (PASB)’s planned issuance of the 3y, 5y and 7y of MYR700m, MYR900m and MYR500m closed at rates of 3.96%, 4.06% and 4.27% respectively, giving a spread of 33-34bps over the benchmark GII on issuance.

APAC USD Credit Market:

¨      Risk off spurs interest in US treasuries. The upcoming UK general elections and the ECB policy meeting, as well as former FBI director James Comey’s testimony before the Senate Intelligence Committee, reigniting interest into the FBI’s investigation into the alleged Russian interference of last year’s US presidential elections. UST2y slipped 1bp to 1.29%, while the 10y lost 3.7bps to 2.15%.

¨      Asian bond markets ended mixed; IG credit spreads widened 1.5bp to 176.9, while average speculative bond yields declined 1bp to 6.54%. Credit protection cost was marginally wider, quoted at 87.6bp, driven mainly by higher CDS spreads in State Bank of India probably due to its large exposure to Reliance Communications.

¨      More woes for Reliance Communications (RCOM) as Fitch and Moody’s cuts ratings to RD and Ca respectively. The downgrades were on the back of the announcement of the group proposed debt restructuring plan, including a 7-month moratorium to service its debt, which is currently being considered by foreign lenders. In order to meet payment obligations, the group plans sale of its tower business and merger of its wireless operations.

¨      Moving to new supply; China Construction Bank (A1/A/A) via CCB International Ltd (A1/A/NR) received 2.17x BTC for USD600m 5y bonds priced at T+110bp compared to IPT at T+135bp area, whereas China Everbright Bank/HK (Baa2/NR/BBB) sold USD500m 3y FRN at 3mL+85 (IPT at 3mL+110bp). Chinese property developer - Fantasia Holding Group (B2/B+/NR) taps the market for USD350m bond maturing in June 2018, sold at 5.5% or 25bps inside IPT; garnering solid BTC of 3.7x.

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