FW: RHB FIC Credit Markets Update - 15/8/17

 

15 August 2017

 

 

Credit Markets Update

                                               

Risk Appetite Improves, Bearish Yield Shifts

MYR Credit Market:

¨         The reduction in geopolitical escalation over the weekend and the lackluster US CPI print aided Asian currencies, MYR advanced 0.04% to 4.2933/USD recovering mildly from the sell-off in risk assets last week. The MGS tumbled -0.6 to -3bps across the 3-10y in an active govvies trading session, the MGS 3y ended at 3.25%, while the 10y at 3.99%. Malaysia CDS levels recouped some of last week losses, quoted nearly 3bps tighter at 83.6bp.

¨         Moderate-to-active flows into the Govvies space amounting to MYR2.8bn. The most actively traded was the benchmark MGS 10y at MYR283m trades, GII 4/20 at MYR250m and the non-benchmark MGS 3/19 at MYR220m. Total GII trades stood only at MYR480m.

¨         Corporate segment fairly quiet. Just MYR243m changed hands notably in the quasi-government space. PASB 2/23 and 6/24 settled at 4.10% (+0.2bp) and 4.24% (-4.4bps) respectively on combined MYR50m trades. MYR80m dealt in the Danainfra complex mostly at the longer end, 4/35, 5/37, 5/42 and 5/47 moved between -2.6 to +33bps to 4.95%, 4.98%, 5.11% and 5.16% respectively. Lastly, PLUS 1/38 narrowed 1bp to end at 5.00%.

¨         In the primaries, subdued demand for the new MYR3.5bn 3.5y MGS 02/21 which attracted merely 1.7x BTC with an average yield of 3.441%. Eco World Capital Assets Berhad printed MYR250m 6.5% 5y unrated bonds from its MYR500m unrated MTN programme. Issued at +288bps over the 5y MGS.

APAC USD Credit Market:

¨         Bear flattening of UST as risk appetite improves. An easing of geopolitical risk followed a week of heightened political concerns following both reassurance by US Joint Chiefs Chairman Gen Dunford that the current primary focus of the military is supporting the diplomatic and economic campaign to denuclearize the Korean peninsula, while China implemented a ban of iron, lead and coal following the UN sanctions. As risk appetites returned to the market, USTs were further weakened as NY Fed President Dudley's comments that a balance-sheet plan announcement in September and a further hike in 2017 are not unreasonable. The 2y UST yields rose +2.4bps to 1.32% while the 10y UST yields picked up +3.0bps to 2.22%.  The DXY regained +0.36% to rise to 93.41.

¨         Asian CDS and yields continue to widen. As yields continued to rise, the spreads in the Asian HY credit index remained at 6.76%, despite the widening the week before. The Asian IG spread fared better tightening -2.4bps to 171.5bps. The Asian CDS continued to rise and picked up a further 1.5bps to 87.3bps. Korean names led the widening as Woori Bank, KDB, IBK, EXIM Bank Korea, Samsung, and Kookmin Bank saw CDS widen +4.8 to +9.3bps. Sovereign names on the other hand saw rallies, led by Malaysia, Philippines, China and Indonesia which saw CDS levels drop between -1.1 to -5.9bps.

¨         Primary markets was silent on Monday. In the pipelines, CIFI Holdings Group Co Ltd (Ba3/BB-/BB-) plans to issue USD perpetual nc5 bonds, with step up coupon payment reset every 5 years with an IPT of around 6% area.

¨         Over in ratings, S&P upgraded Yingde Gases Group Co to CCC+ from CCC-, which also resulted in the upgrade of its subsidiary Yingde Gases Investment Ltd to CCC from CC. This upgrade follows the repayment of offshore bank loans and domestic notes in June and July 2017 totalling CNY1.56bn. Though the group is not expected to have sufficient liquidity to cover the upcoming USD395m, but its controlling shareholder PAG Asia Capital, a private equity firm is expected to provide liquidity support and secure refinancing plans in a form of shareholder loans which has happened since it was taken over in April 2017.

 

 

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