FW: Credit Market Watch: Summary for week ending 8-Sep

 

Credit Market Watch: Summary for week ending 8-Sep

·         MYR Credit:

Ø  MGS yield curve bull-steepened along the 5y15y with the 5y yield firmer by 10bps and the 10y firmer by 7bps WoW. Solid demand from foreign investors pushed yields lower as well as the Ringgit stronger with USDMYR pair falling from 4.26 to a low of 4.18 before retracing back up to around 4.20. Corporate bonds tightened 1-3bps WoW with MYR2b in volumes.

Ø  Monetary Policy: The OPR was maintained at 3.00% as expected. BNM’s statement largely reiterated better-than-expected domestic growth for 2017 amid synchronized and entrenched firmer global economic growth, and moderating domestic inflation as cost-push effects wane. Our economic research maintains the view of no change in OPR for the rest of the year.

Ø  Bahrain Mumtalakat: Its MYR3b Sukuk Murabahah programme rating was lowered to A3/stable from A1/negative by RAM in line with the agency downgrading Bahrain’s sovereign rating to A3/stable from A1/negative given that the former is the government’s investment arm. The downgrade was due to the sovereign’s continuing weak fiscal position and increased external vulnerabilities given elevated government expenditure and sluggish oil price recovery.

Ø  Relative value: BEWG 2020 offers some yield pick-up last trading at 5.00% or 21bps wide from our fitted AA2/AA line. AAA-rated GB Services also saw good pick-up last traded 43bps wide from fitted line.

·         Asian Credit:

Ø  UST curve bull-flattened along the 2y10y with the 2y yield down 8bps and the 10y yield down 12bps WoW. Simmering concern over North Korea’s threat and damages by hurricanes in the US fuelled demand for safe-haven assets. While it is still uncertain how these events will pan out, the impact could be “transitory”. Unless the North Korea risk evolves into a full-blown crisis, market will eventually shift their focus back to the Fed’s balance sheet reduction and monetary policy outlook, which we think is not as dovish as implied by current market pricing and will guide UST yields higher from existing lows.

Ø  Asian credit tone remained constructive generally tracking the stronger UST last week, though spreads were slightly wider with JACI composite +3bps, JACI IG +3bps and JACI HY +4bps WoW. Sovereign INDON, PHILIP and MALAYS roughly tracked the UST movements, with yields 8-15bps lower WoW.

Ø  USD new issues: 1) China Minsheng sold USD450m 3y FRN at 3mL+90bps and USD350m 5y FRN at 3mL+100bps, with overall book cover of ~2.2x. Allocations were mostly, 87-88%, to banks. 2) Ayala sold USD400m PerpNC5 at 5.125% from 5.625% IPT on ~6.3x book cover. Allocations were fund managers 67%, banks 12%, insurers/pension/corps 7% and PB & others 14%. 3) Lai Sun sold USD400m 5y bonds at 4.6% from 4.85% IPT on ~1.9x book cover. Allocations were PB 61%, fund managers 25% and banks 13%. 4) China Aoyuan raised USD250m via 5NC3 bonds at 5.375% from 5.875% IPT on 11.2x book cover. Allocations were primarily fund managers 84%, banks 7% and PB 5%. 5) Sinopec raised a total of USD3.25b in a 4-tranche deal with 3y, 5y, 10y and 30y bonds, and pricing was +87.5bps, +97.5bps, +120bps and 4% (the number) respectively.

Ø  Rating change: 1) Bank of Communications’ rating was downgraded to A3 from A2 by Moody’s, citing increasing reliance on wholesale funds and declining profitability. Its baseline credit assessment was lowered to ba1 from baa3, meaning the unchanged 4-notch uplift on expectation of high likelihood of government support, being 41.3% owned by the MOF and Social Security Fund. 2) China Jinmao’s outlook was raised to stable from negative by S&P, citing expectation of moderate expansion, a balanced business mix and above-average profitability. Debt/EBITDA is expected to remain in 5.5-6.0x range, within the negative trigger. Its BBB- rating has incorporated one-notch uplift on parental support by Sinochem.

·         CDS: EM Asia 5y CDS spreads were generally wider, led by Korea +11bps, China +5bps, Philippines +3bps, Malaysia and Indonesia +1bp each while Thailand -2bps WoW.