MGS strengthened along with the improved global bond sentiment and lower domestic CPI print for June, with the MGS yield curve shifting 3-8bps down WoW. Corporate bonds saw a pick-up in tra

Credit Market Watch: Summary for week ending 21-Jul

·         MYR Credit:

Ø  MGS strengthened along with the improved global bond sentiment and lower domestic CPI print for June, with the MGS yield curve shifting 3-8bps down WoW. Corporate bonds saw a pick-up in trading activity to MYR2.3b volume, mostly skewed to the AA sectors where yields tightened 1-2bps WoW.

Ø  June CPI: Headline inflation rate slowed for a 3rd consecutive month to 3.6% YoY (May: 3.9%) along with the deceleration in transport prices to 10.5% (May: 13.1%), while core inflation eased slightly to 2.5% (May: 2.6%). For 1H17, headline inflation came to 4.1% (1H16: 2.7%) with core inflation slowing down to 2.5% (1H16: 2.9%). Our economic research expects further easing in cost-push headline inflation to 3.0-3.5% for 2H17, and no change in our OPR view.

Ø  External reserves: Increased by USD0.2b from end-June to USD99.1b as of mid-July, inching closer to the USD100b mark. YTD, external reserves is up by 4.8% (end-2016: USD94.6b) and now cover 7.9 months of retained imports and 1.1x short term external debt.

Ø  Relative value: Maxis’ BGSM offered slight yield pick-up with its 2020 to 2026 bonds trading 2-7bps wide from our fitted AA3 line. Maxis’ refrain from competing on prices has helped the company exhibit stable revenue trend in recent quarters, with 1H17 revenue and EBITDA each up 2% YoY to MYR4.3b and MYR2.3b respectively. The telco had also recently undergone an equity capital raising exercise, easing concerns on balance sheet health.

·         Asian Credit:

Ø  UST curve flattened on a bullish stance with yields down 2-9bps WoW across the 2y10y. Market sentiment turned cautious on rising political risks in the US as probe into Trump administration is widened to his family members and the President was reportedly researching on authority to pardon associates, family members and himself.

Ø  Asian USD credits traded firmer on the back of UST strength. On sovereigns, INDON and PHILIP curves shifted 5-15bps lower while KOREA and MALAYS curves about 8-11bps lower WoW.

Ø  New issue: Parkway Pantai raised USD500m from Perp NC5 at 4.25% from 4.625% IPG on USD1.2b orders. Demand predominantly came from fund managers and private banks, with allocation of 82% and 17% respectively. Allocation by region was 79% to Asia and 21% to EU.

Ø  Rating change: Singtel’s rating was lowered to A1 from Aa3 by Moody’s, citing elevated debt metrics e.g. debt/EBITDA that is more in line with A1. Competition in key markets has increased. Given its high capex and spectrum payments as well as a commitment to high payouts to shareholders, it is less likely to reduce debt load organically. Singtel’s rating continue to benefit from a 2-notch uplift from its BCA of a3 on expectation of support by parent Temasek Holdings.

·         CDS: EM Asia 5y CDS spread performance was mixed, with Indonesia and Korea 1-2bps tighter, Malaysia and Thailand 1-2bps wider while China was flat WoW.