26 October 2017
Credit Markets Update
Eye on 30y MGS Reopening; Indian Banks Rally On Capital Injection Plans
MYR Credit Market:
¨ 30y MGS 03/46 in focus. The benchmark MGS 3y, 5y and 7y saw gains ranged between +2bps and +2.5bps settling at 3.50%, 3.72% and 3.99% respectively. The 10y MGS saw a decline of nearly -1bp closing at 3.95%. The MYR settled slightly lower by 0.08% against the greenback, closing at 4.2352/USD. Later today, investors will also be eyeing the 30y MGS 03/46 reopening. The announced planned issuance size is MYR2bn with an additional MYR500m privately placed.
¨ Govvies trades picked up with volume recorded at MYR2.7bn. Top traded was off-benchmark MGS 02/18 with MYR661m recorded with yields at 3.01%. Other top trades were benchmark MGS 5y 03/22 on MYR328m transacted while the benchmark 7y MGS 09/24 saw MYR361m changing hands.
¨ Corporate trading was healthy with MYR420m changed hands. Top trades were Jambatan Kedua 05/25 gaining +17bps to 4.38%, last traded on 2-Feb and PTPTN 08/23 narrowed 0.5bp to 4.28%, on MYR70m and MYR60 respectively. UMWH 06/22 and PASB 09/25 both saw MYR30m changed hands and yield increased between +2.5bps and +3.9bps respectively.
APAC USD Credit Market:
¨ US equities fall half weakening USTs. Equities markets in the US saw a fall on a series of disappointing losses as the stock market were paring earlier losses. In addition, the market remain in suspense as the President continues to give mixed signals on the post of Fed chairperson now suggesting that the current Fed Chair Janet Yellen "might be worth keeping" in his recent interview while recent reports suggests Gary Cohn is not considered as his efforts in the fiscal reforms proposals are still required. The UST yields continue to rise, with the 10y remaining above 2.40%, gaining 1.3bps at 2.43%, while the 2y continue to edge higher just under 1.60% level (+1.4bps). Over in economic news, the durable-goods orders rose 2.2% in September (consensus: 0.7%), while new home sales rose 667k in September (consensus: 555k) rising 18.9% against August, both increasing the prospects for better 3Q GDP expectations. Despite this the USD continued to weaken as seen by the DXY index which fell to 93.77 overnight (-0.07%). Investors will be looking forward to the ECB meeting later today to see plans by the Governor Mario Draghi on plans to taper its monthly asset purchase programme in 2018.
¨ Asian bond markets ended mixed. IG credit spreads narrowed -1.2bps to 156.6bps, whereas the average non-IG bond yields rose 2bps to 6.61%. The iTraxx AxJ IG spreads slipped lower to 74bps (-0.6bp). Performers in this space was Bank of India, Reliance Industries, ICICI Bank and State Bank of India with CDS spreads tumbling between 4.4bps to -13.8bps. Indian Banks saw compress spreads following the announcement by the Government of India of the recapitalization of Indian public sector banks', pledging to inject USD32bn of capital over the next two years. Moody's opines that the move is a significant credit positive for Indian public sector banks as the quantum of the plan is large enough to comprehensively address the weak capitalization levels, which is a main credit weakness of most public sector banks. Contrastingly, CDS spreads of CapitaLand Ltd, GS Caltex Corp rose 2.6bps and 3.7bps respectively.
¨ On new bond supply, Korea Housing Finance Corporation (expected rating: Aa1/NR/NR) priced USD500m 5y covered bonds at T+100bps, 25bps inside of guidance area, receiving a BTC of 2.0x. Later today, Hainan Airlines (Hong Kong) Co. (NR) guaranteed by Hainan Airlines Holding Co. will price USD Oct 18 bond with IPT indicated at 6.5% area.
¨ Over to rating, Moody's has assigned Heungkuk Life Insurance Co. Ltd a Baa3; stable outlook. The rating reflects on its conservative investment of which it comprises of bonds and money market funds (56% of total investments at end-June 2017), loans (22%), alternative investments (13%), and equities and equity-type funds (4%) as well as the balanced distribution channels through bancassurance (31% of total premium income as of 1H2017), general agency (30%), tied agency force (23%) and other direct sales channels, including telemarketing (16%). Their credit strength was subdued by ROC which has deteriorated to 3.2% in 2016 from 11.1% in 2012, with a five-year average ROC of 5.8%. Fitch has removed negative watch rating on Yingde Gases Group Co. Ltd; affirmed at B+. The outlook is placed on stable following the completion of private equity firm PAG Asia's offer for Yingde in 1H17. This was also strengthened by clarification made by management of Yingde on the new owner's direction for the company.
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