Over to ratings, China Railway Group’s (CREC) outlook was changed to Positive by S&P; affirmed at BBB+ premised on the expected improvements in its leverage profile over the next 12-24 months based on the company’s prudent expa

2 August 2017

Credit Markets Update

                                               

MYR and MGS Weakens Despite Falling CDS

MYR Credit Market:

¨         MYR and MGS weakens despite falling CDS. The MYR was again one of the weaker underperformers compared to most of its EM peers closing at 4.2860/USD (-0.11%). The 10y benchmark MGS yield continued to be tested as it closed weaker at 3.99% (+0.6bps). The 3y MGS remained unchanged at 3.30%. This occurs while the Malaysian CDS hit historical lows of 79.6bps, a level not seen since September 2014.

¨         Trading of govvies weakens but corporate bond trades were strong. Trading in govvies weakened saw just under MYR1.3bn govvies changed hands. The most popular security traded involved the new issued benchmark 10y MGS 11/27 which saw MYR193m. Trading in the corporate bond market on the other hand spiked to see MYR1.0bn trades recorded. MYR320m of which involved KHAZANAH 06/22 and 09/22 which fell +3.3bps and +2.7bps respectively to 4.14% and 4.15%. Most other major trades which occurred among AA-rated issues. BGSM 18s and MAYBANKISLM 24s callable 04/19 both fell +0.6-3bps to 4.31% and 4.46%. BENIH RESTU 25s remained unchanged at 4.62%. UEMS 22s and IMTIAZ II 03/19 rallied to 4.74% (-0.7bps) and 4.29% (-0.8bps).

¨         In the primaries, BNM has announced the auction for the new benchmark 20y GII 08/37 which has a planned issuance on 04/08. The planned auction is MYR2.5bn, and will be closely watched considering the pressure on the yield curve the past week.

APAC USD Credit Market:

¨         Treasuries yields slide on as the latest slew of disappointing US economic prints ahead of the NFP report release on Friday. July ISM manufacturing print was weaker-than-expected at 56.3 (June: 57.8), while inflation remains weak as the June PCE core index stayed flat 0.1%, similar to its release in June (consensus: 0.1%). Furthermore, June personal spending grew 0.1% MoM (May: 0.1%), whereas personal income was unchanged, compared to consensus of 0.4% gain (prior: 0.4%). Market participants were also concerned over the slip in July auto sales. The UST 2y and 10y slipped -0.8 to -4.1bps to 1.34% and 2.25% respectively.

¨         Asian credit markets were broadly unchanged. Both IG credit spreads and non-IG bond yields declined 1bp to 168.2bp and 6.66% respectively. Asian credit insurance cost was quoted lower at 81.4bp (-0.6bp), with lower CDS spreads seen across most constituent members by 0.2 to 1.5bp.

¨         HY and unrated issues continued to hit the primary markets, China Chengtong Investment Company Ltd (NR/NR/NR) via its subsidiary CCTI 2017 Ltd printed USD500m 5y bonds at T+182.5bp, 32.5bp inside of IPT guidance area, receiving BTC of 4.2x. Chinese property developer, Future Land Holdings (Ba2/NR/BB-) sold USD200m 5nc3 bond at 5.25%, 50bps inside IPT guidance, whereas, China Logistics Property (B3/NR/B) priced USD100m 3y bonds at 8% or at IPT level. In the IG space, India’s Axis Bank (Baa3/BBB-/BBB-) received 2.4x BTC for USD500m 5y senior bonds at T+130bp against IPT at T+155bp area.

¨         Over to ratings, China Railway Group’s (CREC) outlook was changed to Positive by S&P; affirmed at BBB+ premised on the expected improvements in its leverage profile over the next 12-24 months based on the company’s prudent expansion appetite and good working capital management. CREC’s debt declined for the second year in a row, while maintaining its revenue and profit. The group’s debt/EBITDA declined to 3.6x in 2016 from 4.8x in 2015, while the FFO/debt improved to 0.14x from 0.10x.

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