FW: RHB FIC Credit Markets Update - 8/9/17

 

8 September 2017

 

 

Credit Markets Update

                                               

BNM Holds Rates; USD Weakens; Moody's Downgrades BoCom

 

MYR Credit Market:

¨         MYR and MGS extends rally. MYR strengthened +0.70% to 4.2105/USD as the USD extended its losses against most major currencies overnight. Improving Brent oil prices to USD54.5/bbl (+0.50% overnight) also supported the MYR. MGS extends rally, with the 10y MGS rallying further to 3.85% (-0.8bps) while the 3y MGS was largely unchanged at 3.35%.

¨         Trading remain strong in both govvies and corporates as prices rally. Govvies continue to see strong trades as MYR7bn changed hands. As usual the trades were concentrated on the short end of the curve accounting for MYR3.3bn of trades done. The benchmark MGS 3/22, MGS 9/24, and GII 07/27 all saw strong trades of MYR608, MYR614m, and MYR663m respectively. The MGS 5y rallied -2.3bps to 3.53%, whereas the MGS 7y rallied -2.1bps to 3.81%, while the GII 10y strengthened -1.2bps to 4.01%. Trading in corporate bonds continue to increase to a strong MYR860m recorded. Dominating the trades were mainly GG and AAA names. Among the major trades done were the short dated CAGAMAS 03/18 which saw MYR190m traded at 3.45% (-0.3bps). LPPSA 04/27 on the other hand saw MYR100m traded at 4.44% (-1.3bps). The DANAINFRA complex saw a large amount of trades totalling MYR240m of maturities of 24-39, with yield rallying between 0 and -10 bps traded at 4.26%-4.96%.

¨         BNM's Monetary Policy Committee (MPC) maintained the OPR unchanged for the seventh meeting at 3%, expecting a sustained higher growth from firm domestic demand and spill overs from the external sector. This is in line with RHB's expectations of growth of 5.3% in 2017. BNM also expects the headline inflation, which has been on a moderating trend to continue falling on smaller effects from global cost factors, though will be sustained by robust domestic demand. RHB expects the inflation to moderate to 2.8% YoY in 2H17.

APAC USD Credit Market:

¨         The USD weakens as the USTs rally. The ECB in its meeting left interest rates and the pace of the asset purchases unchanged. The lack of attention put on the strength of the EUR and the statement that further discussions on the QE program by the ECB in October, further saw a rally in the EUR. The US continues to retrace its weakness against other currencies, as the UST continued to rally and the economic effects of the two recent hurricanes continues to be priced in. The initial jobless claims for the previous week rose to 298k (+62k), the largest since November 2012. The 2y and 10y USTs saw a rally of -4.0bps and -6.6bps respectively to 1.26% and 2.04%. The USD fell against most major currencies as the DXY Index ended at 91.66 (-0.7%) the lowest recorded level for the year.

¨      Asian credit spreads improved. The average Asian ex Japan IG spreads and the average yield on HY Asian ex Japan saw spreads improve -0.2bps and -1.0bps as the USTs saw a slight pickup the previous day ending at 174.6bps and 6.56% respectively. This should unwind from the UST rally overnight. The average IG Asia ex Japan CDS continued to rise to 79.30bps (+0.5bps). Strangely, most moves were dominated by sovereign names. The sovereign CDS of Thailand, the Philippines and South Korea rose +0.1 to +0.3bp whereas the sovereign CDS of Malaysia, China and Indonesia tightened -0.2 to -0.3bps.

¨         Santos Finance (NR/BBB/NR) issued USD400m 10y bonds, guaranteed by Santos Ltd. The bond was issued at T+210bp vs IPT of T+230bps. Weichai International Hong Kong Energy Group Co (NR/BBB-/BBB) issued USD800m Pnc5 bonds guaranteed by Weichai Power Co (NR/BBB/BBB+). The bonds have 3.75% coupon, which resets every year after 5 years. Westpac Banking Group (Aa3/AA-/AA-) is currently having a roadshow with expectations of possible issuances of Pnc10 AT1 USD bonds.

¨      On ratings, Moody's downgraded the rating of Bank of Communications Co Ltd (BoCom) to A3/Sta from A2 on review for downgrade. This follows Moody's placing the issuers on review for downgrade in May 2017. This downgrade is based on Moody's view that BoCom has a weaker funding profile compared to its peers, with the fact that it has a weak deposit franchise, a high presence in more competitive coastal areas, and its higher dependence on market funding now accounting for 34% of its tangible assets as at Jun-17 (26% end-2015). This resulted in pressured profitability where its interest-bearing liabilities increased 10bps in a period where other state-owned banks saw a decline, and its ROA fell 9bps YoY to 0.91% 1H17.

 

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