17 August 2017
Credit Markets Update
UST Yields Fall On Dovish Fed Minutes
MYR Credit Market:
¨ MYR fall amid the better-than-expected US retail sales print. Along with other EM Asian currencies, MYR weakened another -0.07% to 4.2985/USD amid the rally in the greenback after the stronger-than-expected US retail sales print and Aug Empire manufacturing index. The new benchmark 3y MGS 2/21 yields was at 3.44%, while the 10y MGS added 1bp to 3.99%. Malaysia CDS levels continued to tighten throughout the week to 80.3bp (-1.1bp overnight).
¨ Trading of Malaysian govvies close to MYR2.5bn. Trading were mostly concentrated at the belly and the longer end (70% of total trades) though he most active was the new benchmark 3y MGS on MYR290m, followed by GII 4/20 and the MGS 6/31 on MYR270m and MYR266m respectively. The GII sphere saw trades totalling MYR742m.
¨ In the primaries, Perbadanan Tabung Pendidikan Tinggi Nasional (PTPTN) issued in two tranches of MYR500m MYR1.3bn, maturing in 6y and 15y. The GG sukuks were traded at 4.28% and 4.92% with spreads of +51bps and +39bps respectively over the corresponding GIIs. Maybank via its MYR10bn CP/MTN programme issued 1y MYR200m AAA-rated bonds.
¨ Busy corporate bond market with MYR970m changing hands more than doubling from the previous day (MYR441m). Trading in the secondary bond market were mainly focused on GG/quasi-government bonds. The new PTPTN 8/23 and 8/32 were the mainly in focus on combined trades of MYR500m followed by LPPSA 4/17 (+1bp to 4.48%), Danainfra 4/24 (+27bps to 4.23%) and Cagamas 4/22 (-0.6bp to 4.11%). In the other segment, YTL Power 5/27 inched a tad higher to 4.94% on MYR40m dealt while FRL 12/17 tightened 5.1bps to 4.17% on MYR30m trades.
¨ Market will be keenly watching for the 2Q GDP print and current account balance to be released on Friday.
APAC USD Credit Market:
¨ UST yields fall post-FOMC minutes. The dovish meeting minutes highlighted the split between Fed members on the timing of future interest rate increases amid the tepid inflation numbers despite strong jobs growth. The minutes also showed little new information of the timing of the Fed's balance sheet reduction plans although Fed members were open to discuss in the upcoming September meeting. Markets were also jittery after President Trump's decision to disband two business advisory groups which dampened investor expectations in the President's ability to deliver on his fiscal policy pledges. UST 2y slip 2bps to end at 1.33%, whereas the 10y decreased -5.1bps to 2.22%.
¨ Asian credit markets stable. The iTraxx AxJ IG inched marginally lower by 0.7bp to 83.4bp. CDS spreads of IDBI Bank compressed -8.6bps overnight despite posting the bank's 3rd straight quarterly loss while asset quality worsens. The Indian government support for IDBI Bank via capital injection shows the government's unwillingness to allow the state lender to miss coupon payments on AT1 bonds according to Fitch, appears to have driven the recent spread tightening. Laggards in the CDS space were DBS Bank Ltd, Hutchison Whampoa Ltd and ICICI Bank Ltd quoted between 2.3 and 4.8bps wider. Elsewhere, IG credit spreads tightened 1bp to 168.8bp whereas average speculative bond yields remained firmly rooted at 6.76%, hovering at that level over the past 4-consecutive days.
¨ Primary markets saw CIFI Holdings Group Co Ltd (Ba3/BB-/BB-) priced USD Pnc5 bonds, with step up coupon payment reset every 5 years with an IPT. The issuance was of USD300m at 5.38% (IPT 6% area), garnering BTC of 3.67x. Medco Straits Services Pte Ltd (B2/B/B) guaranteed by PT Medco Energi Internasional Tbk retapped the market for USD100m of the 5nc3 bonds issued the week before, launched at 99.005, while CK Infrastructure Holdings Ltd (NR/BBB/NR) via Phoenix Lead Ltd sets final guidance for USD Pnc5 bonds at 4.85% area (IPT at 5% area).
¨ Over to ratings, S&P assigns A-/Sta rating to CSL Ltd. CSL Ltd, the world's largest plasma-derived biotherapeutics producer, benefitting from a high barrier to entry, vertically integrated low-cost plasma collection and manufacturing network, and a track record of bringing products to market. The company also has conservative financial policies which can accommodate capital management initiatives, given the on-going but reasonably stable and predictable capital expenditure, R&D, and working capital management. S&P expects the group's debt-to-EBITDA of between 1.3x and 1.6x in FY18 and FFO/Debt at 0.45x in during the same period.
¨ Moody's revised Origin Energy Ltd's outlook to Baa3/Sta from negative. To reflect the rating agency's expectations that Origin will continue to build on its solid performance over the next 12-18 months, which will increase its flexibility to manage the on-going challenges in the Australian gas and electricity markets. Moody's expects Origin's FFO/Debt to trend higher to 0.25x over the next 12-18 months, compared to the 0.15x tolerance for the Baa3 rating band.
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