The selloff in UST continued with the yield curve bear steepening further as the 10y yield rose 8bps WoW to 2.39% while the 2y yield rose 2bps WoW to 1.40%. US June payroll was stronger than consensus’ expectation of 178k coming in at 222k and the previous month’s number was also revised upwards to 15

Credit Market Watch: Summary for week ending 7-Jul

·         MYR Credit:

Ø  MGS yield curve shifted about 3-8bps higher WoW amid the continued selling pressure in global bonds. For corporate bonds, quasi yields were down 2-3bps WoW and were little changed in other credit curves. Of note, there was improved interest in extending duration.

Ø  2H17 Economic Outlook: Our economic research team maintains a real GDP growth forecast of 5.1% for 2017 and estimates 4.9% for 2018. Malaysia’s macroeconomic pressure continues to ease and risks to the sustainability of current account surplus and fiscal consolidation recede with the improvements in global economy, trade and commodity prices. MYR and external reserves have stabilized and strengthened following BNM’s FX measures since Dec 2016.

Ø  Alam Maritim: The rating was cut to D following the downgrade to BB+ on 3 July as the company failed to pay MYR30m due on 6 July. Recall that Alam Maritim has entered into an informal standstill arrangement with its creditors pending the submission of a proposed debt restructuring plan to the CDRC.

Ø  Tan Chong Motor Holdings Bhd: RAM revised its outlook on Tan Chong to negative but affirmed the A1 rating. Tan Chong’s recovery in the next 2-3 years will be challenged by the persistent intense competition, poor consumer sentiment and tight financing conditions in the auto sector. The rating may be downgraded if its market share does not strengthen over the medium term, margin pressure continues, gearing rising above 0.8x or liquidity and debt coverage remaining weak.

Ø  Relative value: Lafarge 1/20 traded 15bps wide from our fitted AA2/AA line at 4.61%, a reflection of its outlook change to negative.

·         Asian Credit:

Ø  The selloff in UST continued with the yield curve bear steepening further as the 10y yield rose 8bps WoW to 2.39% while the 2y yield rose 2bps WoW to 1.40%. US June payroll was stronger than consensus’ expectation of 178k coming in at 222k and the previous month’s number was also revised upwards to 152k from 138k. Labor force participation rate rose to 62.8%, but wage growth was unchanged at 2.5% YoY.

Ø  Asian USD credit spreads tightened further with JACI composite, JACI IG and JACI HY lower by -5bps, -4bps and -10bps respectively WoW. Sovereign yield curves continued to track the UST curve rising 2-12bps higher WoW.

Ø  Rating change: Pakuwon Jati’s rating was lifted one-notch from Ba3 to Ba2 by Moody’s, premised on continued expansion in scale while maintaining a strong financial and liquidity profile. FY3/17 revenue rose 6% YoY to IDR5t, despite the lacklustre property demand, mainly due to improved recurring income from investment properties which mostly comprise retail malls. The rating agency remains sanguine on the company’s revenue outlook.

·         CDS: EM Asia 5y CDS spreads widened led by Korea +9bps, followed by Indonesia +7bps, China, Malaysia, Philippines +3bps each and Thailand +2bps WoW.