3 August 2017
Credit Markets Update
New GII 20y Auction Focus; TBAC 3Q17 Remains Silent
MYR Credit Market:
¨ MYR and MGS remained unmoved. The MYR strengthened marginally against the greenback to 4.2855/USD as the USD continues to be weighed down by US political situation. Brent crude oil price continued to see improvements (+1.12% overnight). The benchmark govvies were mostly unmoved, moving 1bp higher across the curve, except for the 3y MGS which settled unchanged at 3.30%. The 10y MGS breached the 4.0% level yesterday. Later today, focus will be on the new benchmark 20y GII 08/37’s MYR2.5bn auction. With the recent risk rally in the US expected to continue on in Asia, the yield curves especially in the long end are expected to be pressured further.
¨ Trading of Malaysian govvies segment rebound to MYR2.1bn from the MYR1.3bn the day earlier. 57% trades were largely concentrated in the shorter-end <3 years. The top traded were the GII 11/17 and 4/20 on MYR200m and MYR430m respectively.
¨ Active corporate bond market saw MYR589m changing hands, the second day of strong trades for the week. Top traded was A1-rated TCMH 11/19 (jumped 108bps to 6.197%) and 11/21 (rose 78bps to 6.315%) on MYR165m trades, followed by MYR70m involving BGSM 12/23 and 3/26 tightening to 4.849% (+1.2bp) and 4.970% (-1.3bp) respectively. BPMB 3/27 yields added 1.1bps to 4.601% on MYR50 dealt.
APAC USD Credit Market:
¨ Treasuries yields slides as risk markets rallied. The rally in the risk markets were evident in the performance of the equities markets in the US, despite the weak performance seen on the USD and the DXY Index. The DXY Index fell to 92.84 (-0.30%), the lowest level for the year. Over in economic numbers, the ADP numbers showed private employers added 178k in July (190k consensus) but also saw a revision upwards of the previous month’s gain to 191k. The Treasury Borrowing Advisory Committee (TBAC) for 3Q17, failed to address the ongoing concerns on the ultra-long UST issuance, but did mention its ability to fund within the debt-ceiling up to the end of September. The 2y and 10y UST fell, as yields rose +1.8bps respectively to 1.36% and 2.27%.
¨ Asian credit markets began diverging once more. The IG credit spreads widened +0.9bps whereas the non-IG bond yields rallied a further -2bps to 6.76%. The Asian credit-default swaps compressed to a new low at 80.3bps (-1.1bps). Most names saw rallied led by Reliance Industries, PCCW-HKT Telephone and Telekom Malaysia with rallied between -2.86 and -4.32bps. We also saw underperformance by IBK and CNOOC of between +3.51 to +3.54bps.
¨ The primary markets saw a sole issuance by Sunac China Holdings Ltd (B2/B+/BB-) which printed USD1bn bonds. USD400m of which were 3y senior notes issued at 6.875% vs IPT of 7.36%. Another USD600m were 5NC3 senior notes issued at 7.950% vs IPT of 8.2%. Both bonds had ratings of B3/B/BB-.
¨ Over to ratings, Moody’s and S&P assigns Baa1/Sta and BBB/Sta rating to Hanwha Total Petrochemical, on its position as a leading petrochemical manufacturer in Korea, with strategic links to Total S.A., diversified product portfolio as well as high profitability and low financial leverage. Moody’s has revised upwards its negative outlook of COFCO Hong Kong Ltd affirming it at A3/Sta. This is premised on the joint effects of the reduction of debt and improved earnings. COFCO HK saw a reduction by 10% of total adjusted debt in 2016, via disposal of assets, IPO of its subsidiary and implementation of mixed ownership reforms, while at the same time saw EBITDA rise in its key subsidiaries, especially China Agri and Joy City. Underpinning this improvement is also the better credit profile of its parent company COFCO Group. This outlook change also effects the senior unsecured bonds issued by Prosperous Ray Ltd guaranteed by COFCO Hong Kong Ltd now also at A3/Sta.
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