FW: RHB FIC Credit Markets Update - 3/10/17

 

3 October 2017

 

Credit Markets Update

                                               

UST and MGS Bear Steepened; MKD Kencana issued MYR1bn

 

MYR Credit Market:

¨      MGS and MYR extends fall. MGS yields bear steepened with the 3y and 10y rising 1.5 to 4.2bps yesterday to settle at 3.41% and 3.96% respectively amid pressures from UST as markets braced for Fed Chair Yellen's speech at the Fed Reserve Bank of St. Louis. The MYR, accordingly, weakened to 4.234/USD (-0.33%) against the greenback along with most Asian EM currencies.

¨      Quiet govvies trading recording a mere MYR1bn. Top traded was the MGS 10y with a volume of MYR138m, followed by the GII 8/33 on MYR120m (+2.6bps to 4.64%). Benchmark 7y saw MYR83m changing hands. Similarly, corporate trading was thin with a volume of MYR371m concentrated on financial names. PIBB 8/27c22 on MYR100m trades settled -1.1bp lower at 4.52%. PIBB 6/24c19 declined 2bp to 4.30%, while MBSB 5/18 tightened -17.6bps to 4.14%, last traded on 7 Aug. Elsewhere, MMC Corp 11/27 was marginally higher at 5.39% on MYR30m traded, whereas LPPSA 9/19 and 4/24 saw combined trades of MYR40m, settling 0.5 and 0.3bps higher at 3.80% and 4.27% respectively.

¨      In the primaries, MKD Kencana Sdn Bhd (Unrated) printed MYR1bn 15y sukuk via its MYR3.4bn sukuk programme, which comes with a guarantee from the Government of Malaysia. Proceeds will be used to finance project related cost and working capital requirements in relations to the Special Border Economic Zone in the state of Kedah.

APAC USD Credit Market:

¨      USTs continue to fall especially in the long end. Markets continue to price in expectations of the tax reform in the US, while expectations grow that President Trump plans to replace the current Fed Chair with a more hawkish replacement. The economic data on the other hand surprised on the upside as the Markit US Manufacturing PMI for Sept rose to 53.1 from 52.8 in Aug while the ISM manufacturing index spiked to 64.4 for Sept, the highest in 13y. While partly reflecting increased demand following the recovery of Hurricane Harvey, this reflects increased activity on top of already increased domestic and global activity. The confluence of these factors continued to see a bullish market, driving US equities to fresh record highs and leading to a rally in the USD. The UST curve weakened in the long end but saw support especially in the belly of the curve. The 2y UST remained unchanged at 1.48% while the 10y UST fell as it gained +0.7bp to 2.34%. The USD as seen by the DXY Index rose +0.52 to 93.56. Investors will be watching developments in Las Vegas where more than 50 people have died in the deadliest shooting in US history.

¨      Asian spreads tighten as the UST yields pushed up. The average Asian ex Japan IG spreads tightened -2.3bps to 164.1bps, while the yield on HY Asian ex Japan -1.0bps to 6.63%. This widening occurred while UST yields continued to push up coming out from the announced tax reforms in the US. The average IG Asia ex Japan CDS continued to improve to 83.2bps (-0.8bps). The tightening of the CDS was especially seen in Korean names, where Export-Import Bank of Korea, Korea Development Bank, and Hyundai Motor Co all saw CDS levels drop -1.1bps to -2.5bps. This follows the weekend disclosure of US Secretary of State Rex Tillerson that the US and North Korea were in direct negotiations increasing expectations of a diplomatic resolution.

 

 

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