FW: Credit Market Watch: Summary for week ending 6-Oct

 

Dear all,

 

Credit Market Watch: Summary for week ending 6-Oct

·         MYR Credit:

Ø  MGS yield curve was flatter along the 5y15y as 5y yield rose 2bps while the 15y yield dropped 2bps WoW. Corporate bonds weakened on selling interest, particularly the quasi space, with yields 1-3bps up across credit curves WoW.

Ø  Danajamin raised MYR500m AA1-rated subdebt with a 10NC5 structure. The issuance was upsized from the initial MYR300m and done through MYR400m bookbuild + MYR100m private placement. Relative to bank subdebts, we think Danajamin subdebt offers value given its policy insurer role and without the PONV clause, but pricing is weighed by the generally wider Danajamin FG curves.

Ø  Econs: External trade data remained robust in August with exports growing by 21.5% (July: +30.9%) and imports by 22.6% YoY (July: +21.8%), widening trade surplus to MYR9.9b (July: +MYR8.0b). Near term external trade outlook remains optimistic as reflected by short term trade-related leading indicators namely global manufacturing PMI and US ISM new order index having readings of over 50. External reserves rose USD0.7b MoM to USD101.2b at end-September (Aug: USD100.5b) on trade surplus and positive bond flows.

Ø  Relative value: Quantum Solar Park curve still offers pickup e.g. the 2025s-2028s part is 13-20bps wide from our AA3/AA- fitted curve.

·         Asian Credit:

Ø  UST curve rose 2-3bps along the 2y10y WoW. This is the fourth week of UST yield increase in a row as geopolitical tensions remains contained and market has given more weight instead to the prospect of US rate increases. While last week’s nonfarm payrolls reported a 33k decline in September because of disruption by Hurricane, wage growth surprised positively with a 2.9% YoY gain (Bloomberg consensus 2.6% YoY), the highest in 2017. This may add to the Fed’s conviction that inflation, with rising pace of wage growth, will eventually move to its medium term target which justify more hikes in FFR for which the market has not sufficiently priced in.

Ø  Asian credit market was quiet last week with China out for the golden week but overall showed resilience with tighter spreads seen on JACI composite -4bps, JACI IG -3bps and JACI HY -5bps WoW. Regional sovereign traded mixed, with MALAYS yields lower by 1-3bps but KOREA 3-6bps higher, while INDON and PHILIP curves were approximately +/-2bps WoW.

Ø  Rating change: Global Logistic Properties’ Baa2 rating was put on review for downgrade by Moody’s following its announcement to acquire a portfolio of assets in Europe from Gazeley. The acquisition is expected to stress its leverage position over the threshold for Baa2, with adjusted net debt/EBITDA rising to 10-11x in March 2018 from 8.9x at end-Mar 2017, the agency notes. Progress on deleveraging will be monitored and further negative rating action may still be averted if debt cover ratio is improved via asset sales, failing which a downgrade would likely happen.

·         CDS: EM Asia 5y CDS spreads were generally narrower, led by Korea -5bps, followed by Indonesia and Malaysia -4bps each, China -3bps and Philippines -1bp while Thailand was up by a marginal 1bp WoW.

 

Thank you.