MYR Catch Up Yield Shifts; Spreads Widen on N Korea Development

10 July 2017

Credit Markets Weekly

MYR Catch Up Yield Shifts; Spreads Widen on N Korea Development

SUMMARY:

¨      MYR Credit Market: MYR and MGS catches up to global yield shifts. Coming off long holidays and weak trading, the resurgence of trading saw falls in government bonds, following the trend seen in global bonds over the previous week. The MGS curve weakened WoW as the MGS 3y closed at 3.40% (+1bps) and the 10y MGS at 3.99% (+8bps). The MYR moved sideways to end the week at 4.2982/USD (-0.11%).

Corporate News – Cagamas issued MYR1bn. The reopening of the 7y MGS 09/24 saw a strong BTC of 2.88x with an average yield of 3.92%, -2bps lower than the benchmark yield closing the day before. The week saw the bond fall once more to end the week at 3.94%. Cagamas was the sole major corporate issuer for the week, with MYR1bn of AAA-rated 5y bringing total issuance to just under MYR4.5bn for the year. The bonds were issued at 4.09%, 38bs over the benchmark 5y MGS on issuance.

¨      APAC USD Credit Market: Treasury yields on the rise as strong June NFP print affirmed hawkish global central banks rhetoric. The June FOMC minutes also encouraged the recent hawkish views by global investors, while reinforcing plans to reduce the size of its balance sheet. UST 2y rose approximately 2bps to 1.40%, while the 10y soared 8bps WoW to 2.39%; Brent oil prices declined 2.5% WoW to USD46.7/bbl despite climbing to USD49.7 early on in the week, weighed down by rise in US production and the weekly rig count, along with the concerns over rising OPEC’s rising oil exports.

Rating Actions – Moody’s gave Pakuwon Jati’s rating an upgrade to Ba2/Sta premised on its growth in scale, while maintaining a solid financial and liquidity profile. Fitch slashed CAR Inc’s rating to BB-/Sta from BB/Neg to reflect lower earnings from the company’s aggressive pricing strategy and declining fleet rental revenue from UCAR.

Table 1: Index Weekly Movements

Indices	7-Jul	30-Jun	Weekly Chg (bps)
iTraxx AxJ 5y IG	89.5	86.3	3
AxJ IG Spread (bps)	168.7	173	-4
AxJ HY (%)	6.88	6.66	22
SOR 2y (%)	1.41	1.27	14
SOR 5y (%)	1.91	1.77	15
Malaysia 5y CDS	88.9	85.4	3
MGS 3y (%)	3.40	3.39	1
MGS 5y (%)	3.75	3.62	13
MGS 7y (%)	3.94	3.90	5
MGS 10y (%)	3.99	3.91	8
AAA 5y Spread* (bps)	56	67	-11
AAA 10y Spread* (bps)	67	73	-6
AA 5y Spread* (bps)	91	102	-11
AA 10y Spread* (bps)	103	109	-6

Source: Bloomberg, BNM, RHBFIC        *MYR-denominated bonds

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