On rating action, Fitch upgraded Shanghai Pudong Development Bank (SPDB) to BBB/sta from BBB-/sta as Fitch perceives a higher probability of support given its stronger ties with the Shanghai State-Owned Asset Supervision (Shanghai SASAC) and Administration Commission of the Shanghai Municipal government. Fitch cited that SP

20 July 2017

Credit Markets Update

                                               

June Malaysia CPI Slows to 3.6% YoY; ECB and BOJ in Focus

MYR Credit Market:

¨      MYR falters on USD weakness. The weakness of the US healthcare reform bill in the Senate the day before saw the consolidation in UST yields and the USD continue into rallies in Asia yields and currencies yesterday. The MYR was an underperformer as it settled at 4.2865/USD (-0.04%). The MGS saw another day of rally, though the long end weakened as the 3y and 10y MGS ended at 3.37% (-1.4bps) and 3.94% (+1.4bps). The markets may pause over the day as they await the slew of central bank meetings of the ECB and the BOJ.

¨         Govvies were weak but corporate trading spiked. Trading in govvies saw MYR2.0bn securities change hands. A large amount of trades occurred around the 7y MGS 09/24 which saw trades of MYR651m, rallying a further -1.1bp to settle at 3.90%. The 3y and 5y GII 04/20 and GII 04/22 saw trades of MYR146m and MYR120m each. Trading in corporate bonds saw a spike to MYR846m recorded. Among the major trades which occurred, PLUS 23s saw MYR80m trades which saw the security rally –1bp to 4.26%. MYR50m and MYR40m each of AMAN 04/22 and KESTURI 12/28 saw a fall in the securities as they ended 4.34% (+4bps) and 4.89% (+7.2bps) respectively.

¨         In economic news, the headline inflation rate slowed down further to 3.6% YoY in June, driven by a slowdown in transportation costs from lower fuel prices and due to a lower base effect. RHB expects the headline inflation to average 3.5% in 2017.

APAC USD Credit Market:

¨         Treasuries mostly edged higher on the back of resilient housing data from the US. June housing starts grew 8.3% MoM compared to forecast of 6.2%, while new building permits rose 7.4% MoM (consensus: 2.8%). Looking ahead, investors will be focusing on the ECB and BOJ meeting later tonight for cues on the central banks’ policy directions. Similarly in the credit markets, IG credit spreads were little change at 171.3bp (-0.1bp) while average HY bond yields edged lower by 2bps to 6.66%. The iTraxx AxJ IG traded lower to 85.1bp as most constituent members’ tightened across the board. The laggard in this segment were IDBI Bank (+6.1bp) and Reliance Industries (+4.9bp).

¨         In the primaries, Gemdale Ever Prosperity Investment Ltd (Ba3/NR/NR), part of Gemdale Corporation, which is primarily involved in the property and FI space, printed USD200m 5nc3 bonds at 4.975%, 40bps inside of IPT; garnering BTC of 5.5x. On the other hand, Shandong Energy Group (NR/BB/NR) priced USD300m 3y bonds at 4.7%, compared to IPT at 5.05% area. Elsewhere, Doosan Infracore Co. (issue rating: Aa2/NR/NR) sells USD300m 3y bonds at T+102.5bp (IPT +130bp), guaranteed by Korea Development Bank (Aa2/AA/AA-). In the pipeline, CDB Financial Leasing (A2/NR/A+) plans fixed income meetings in Asia and Europe for USD bonds. Elsewhere, China Life Insurance (A1/A+/NR) hires banks for USD subordinated 10nc5 bonds.

¨         On rating action, Fitch upgraded Shanghai Pudong Development Bank (SPDB) to BBB/sta from BBB-/sta as Fitch perceives a higher probability of support given its stronger ties with the Shanghai State-Owned Asset Supervision (Shanghai SASAC) and Administration Commission of the Shanghai Municipal government. Fitch cited that SPDB has been directly supervised by Shanghai SASAC since June 16 and developments over the past year have demonstrated greater support at SPBD. SPDB is currently 26.5% owned by Shanghai International Group which is in-turn wholly-owned by the Shanghai Municipal Government through Shanghai SASAC.

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