11 August 2017
Credit Markets Update
Geopolitical Fears Kept Markets at Bay
MYR Credit Market:
¨ Govvies trading remains in a lull with a mere MYR1.9bn changing hands (yesterday: MYR1.8bn). Top traded were benchmark 5y and 10y MGS with combine trades of MYR463m as yields narrowed -1.9bps and -0.6bp to 3.64% and 3.98% respectively. MGS 3y settled a tad lower at 3.27% amid the risk-off sentiment. Elsewhere, GII trading amounted to MYR741m and was concentrated on the benchmark 3y and 5y GII accounting for MYR303m and MYR350m trades, tightening -0.5 to -1.6bps to 3.55% and 3.77%. MYR, meanwhile, weakened 0.06% to 4.2917/USD.
¨ Corporate trading segment stayed active with volume of MYR519m (MYR596m previously). Interest was observed in the toll-road space, LDF3 8/38 traded flat at 5.40% on MYR40m trades, while MEX II recorded MYR55m as yields of the 4/32 and 4/34 spiked 4.6bps and 12bps to 5.40% and 5.55%. The Cagamas complex saw combined MYR45m trades, 9/17 surged 20bps to 3.64% while Sarawak State-based Aquasar 7/22 and 7/24 tightened approximately 7bps each to 4.39% and 4.50%.
¨ In the primaries, Measat Broadcast Network Systems Sdn Bhd issued MYR300m of its MYR3bn unrated MTN programme. The issued 5y bond has a coupon of 5.3%. BNM announced the action for the new benchmark 3.5y MGS 02/21, which will be issued on 15/08. The planned auction is MYR3.5bn. On to ratings, RAM assigns rating of AAA (MYR130m Class A Sukuk) and AA3 (MYR30m Class B Sukuk) ratings to the 4th tranche RCE-sponsored personal financing ABS, Al Dzahab Assets Bhd.
¨ Malaysia June Industrial production slowed to 4.0% YoY (consensus: 3.0%) compared to 4.6% in May led by the slowdown in the manufacturing sector, given the slowdown in exports in June, while electricity output growth also moderated.
APAC USD Credit Market:
¨ Bear flattening of UST on weak numbers and ongoing geopolitical concerns. The result of increased rhetoric and rising US-North Korea tensions continue to cause risk markets to sell down. The DXY index fell a further 0.16% to 93.40 as the JPY and CHF continue to push further higher against the USD. The economic numbers disappointed as PPI was -0.1% MoM (consensus 0.2%), as the market looks forward to the CPI numbers expected out at the end of the day. This cumulated to the further bull flattening of the UST curve. The 2y UST rallied -1.4bps to 1.33% while the 10y UST rose a strong -5.0bps overnight to 2.20%. The Brent crude fell a further -1.52% to USD51.9/bbl, as OPEC leaders continue to reassure market participants of their commitment to oil cuts and the rising demand of oil.
¨ Asian CDS and yields continue to widen. The credit spreads in Asia continued to widen as Asian HY credit index rose 1bp to 6.76% while the Asian IG spread gained 1bps to 170.3bps on the back of continued risk-off while compressing UST yields. The Asian CDS continued to rise and picked up a further 2.6bps to 84bps. Sovereign CDS levels picked up as Indonesia, China, Philippines and Malaysia saw CDS pick +3.57 to +4.56bps. South Korea, KDB, Export Import Bank Korea and KEPCO saw CDS continue to widen +1.69bp to +2.49bps.
¨ Primary markets saw Medco Straits Services Pte Ltd (B2/B/B), an E&P subsidiary of Medco Energi Internasional, saw its first bond issuance. USD300m 5nc3s were issued at 8.75% vs IPT 8.875%. Greenland Global Investment Ltd (NR/Ba2/BB) issued bonds guaranteed by Greenland Holdings Group, another USD500m bonds at 4.85% vs IPT 5.30%, its third issuance for the year, now amounting to USD1.32bn. China Huiyuan Juice (B1/NR/B+) sold USD150m 6.5% (IPT 6.75%) 3y senior notes while 21Vianet Group (NR/NR/NR) issued USD200m 3np2 putable bonds at 7%. This is the first bond issuance by the Chinese telco company and enjoys a letter of Support from Tus-Holding Co, a government-linked entity.
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