25 October 2017
Credit Markets Update
UST 10y Climbed Above 2.40%; DanaInfra Plans MYR Bonds
MYR Credit Market:
¨ BNM announced the reopening of the 30y MGS 03/46. The reopening is scheduled for the end of the week (27/10) with a planned issuance of MYR2.0bn with an additional MYR500m to be privately placed. The benchmark MGS ended higher despite thin trading on benchmark issues. The MGS 3y settled at 3.48% gaining nearly 1bp, while the 10y closed unchanged at 3.96%. Yields of the MGS 7y climbed to 3.97%, adding 1bp. The MYR recouped some losses to edge marginally higher at 4.2320/USD (+0.13%) amid the weakness over in USD.
¨ Govvies trading volume slightly under MYR2bn. Focus was largely in the shorter-end of the curve, with 72% recorded under 3y. Off-benchmark MGS 2/18 and 3/18 on combined MYR600m settled at 3.05% and 3.01%. Other top trades were the off-benchmark MGS 9/18 on MYR178m while the benchmark 5y MGS saw MYR160m changing hands (+2bps to 3.70%).
¨ Corporate trading was slightly weaker amounting to MYR377m. Trades were focused on GG and AA space (71% of total trades). Top traded was PTPTN 8/32 with MYR125m transacted, with yields edging higher by 1bp to 4.84%, followed by DANGA 9/27 which climbed 2.1bps to 4.62% with MYR40m dealt. Elsewhere, the ABS for RCE Marketing Sdn Bhd, ALDZAHAB 19, 21 and 25 settled at 4.55% (+3.7bps), 4.65% (-7bps) and 5.84% (-15.7bps) respectively on combined MYR37m traded.
¨ Over to the primaries, DanaInfra Nasional Berhad (GG) plans for MYR 7y, 10y, 15y and 20y bond sales. Issue size will be a minimum of MYR2.5bn, with an option to upsize and will likely to be priced in the following week, starting Oct-30.
APAC USD Credit Market:
¨ Treasuries continue to surge; 10y UST reach 5-month high. The 10y UST closed above 2.40%, ending at 2.42%, rising 5bps overnight while the 2y continue to edge higher at 1.58% (+1.7bp). The sell-off in treasuries were driven by the high possibility that John Taylor will likely to be next Fed Chair after the President Trump sough a vote by members of the Republican Senators on this issue and the strong US equities performance underpinned by President Trump's tax plans. The DXY closed lower at 93.77, declining -0.17%. Moving to economic prints, Oct flash Markit US manufacturing PMI rose to 54.5 (consensus: 53.4; prior: 53.1) while flash services PMI was similarly higher at 55.9 in Oct (consensus: 55.2; prior: 55.3).
¨ Asian bond markets little changed. IG credit spreads was a tad lower at 157.9bps, while the average non-IG bond yields were flat at 6.59%. The iTraxx AxJ IG returned some gains to climb to 74.6bps. Laggards in this segment were Reliance Industries (+2.8bps), SK Telekom (+2.4bps) and Malaysian names – PETMK and TELMAL (both added +1.7bps). Performers were notably HK high grade credits such as PCCW-HKT Telephone Ltd, Sun Hung Kai Properties, Hutchison Whampoa Co Ltd and Swire Pacific, quoted between -3.5 to -5bps tighter.
¨ In the primary segment, The Export-Import Bank of Korea (Aa2/AA/AA-) sold USD2bn bonds in a 3-part bond deal – i) USD400m 3y FXD at T+90bps (IPT at T+110); ii) USD1bn 5y FXD at T+100bps (T+120bps) and iii) USD600m 5y FRN at 3mL+95. Asian Development Bank (Aaa/AAA/AAA) priced USD1.5bn 10y bonds at MS+22 (IPT at +24bp area). Elsewhere, Baoxin Auto Finance I Ltd (NR/NR/B+), guaranteed by China Grand Automotive Services Co (B1/NR/BB-) and China Grand Automotive Services (Hong Kong) Ltd printed USD400m Pnc3 at 5.625%, 37.5bps inside of guidance level, whereas BOC Aviation Ltd (NR/A-/A-) retapped the market for USD200m of the 3.5% 2027 bond which was priced at T+135bps or at IPT level.
¨ Later today, Korea Housing Finance Corporation (expected rating: Aa1/NR/NR) will tap markets for USD 5y covered bonds with IPT slated at T+125bp area. South Korean insurer, Heungkuk Life Insurance Co. Ltd (issue rating: Baa3/NR/BBB-) will meet investors in Europe and Asia later this week for a potential USD Reg S subordinated bonds.
¨ Over to rating, outlook on CIMIC LTD was revised by S&P from stable to negative; affirmed at BBB. The outlook on the Australian engineering and construction company reflects the revision made on parent company of CIMIC, Hochtief, from stable to negative. The Germany-based engineering and construction company has announced that it plans to launch a voluntary tender offer for all outstanding shares of Abertis Infrastructures S.A worth about cash-equity mixed of EUR18.6bn. The value of the acquisition, however, may not strengthen its BBB rating over the long-run. Despite this, CIMIC's credit profile is expected to remain solid. This can be contributed by CIMIC's liquidity as the company has the capacity to cover about 1.5x for the next 12 months (FFO/Debt) and more than 1x over the next 24 months.
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