FW: Credit Market Watch: Summary for week ending 3-Nov

 

 

Dear all,

 

Credit Market Watch: Summary for week ending 3-Nov

·         MYR Credit:

Ø  MGS was mixed with yields along the 5y10y recovering 2-4bps following previous week’s selloff but no respite yet for ultra longs with the 15y +11bps WoW. Corporate bond yields around the 15y point also climbed 4-6bps WoW in an otherwise subdued week with MYR1.8b volume traded.

Ø  Hong Leong Bank (HLB): Its financial institution strength along with that of Hong Leong Islamic Bank and Hong Leong Investment Bank were upgraded to AAA/stable from AA1/positive by RAM. The agency cited 3 key factors for the upgrade namely continued healthy asset quality through credit cycles (1.0% GIL ratio at end-Jun 2017), strong funding and liquidity position (80% LDR at end-Jun 2017) and good retail and SME franchise domestically. RAM also assigned AA1/stable to Hong Leong Financial Group Bhd which is 1 notch below HLB due to structural subordination as a non-operating holding company.

Ø  Banking: September stats remained healthy with our banking analyst keeping a 4.7% loan growth estimate for 2017. Annualized loan growth remained at 3.5% YoY, despite the slower monthly pace, as a pick-up in HH loan expansion moderated the slowdown in non-HH loan expansion. Positively, loan applications and approvals on a 3M MA basis continued to grow at a good pace of 9% and 11% respectively. Deposits grew by 4.5% YoY with CASA growing at a quicker pace of 8.8%. No signs of asset quality stress with GIL ratio and loan loss coverage stable at 1.67% and 81.2% respectively.

Ø  Relative value: WCT 2021 and 2022 traded 43-45bps wide from our fitted AA3/AA- curve. Note that MARC has reaffirmed WCT’s AA- rating and revised its outlook back to stable from negative.

·         Asian Credit:

Ø  UST curve flattened with 2y yield up 3bps while 10y yield down 7bps. The nomination of Jerome Powell seems to reassure market that rate rise will remain on a gradual path. Nov’s FOMC meeting was more or less a non-event with similar assessment on inflation and job market, although growth outlook was revised up. Friday’s nonfarm payrolls printed a healthy 261K gains. The fact that it printed below consensus didn’t matter much as it was offset by total prior month revisions of +90K. Unemployment rate inched lower to 4.1%. The only drag was a slower wage growth at 2.4% YoY vs 2.7% YoY consensus.

Ø  Asian credits spreads were generally wider, with JACI composite +6bps, JACI IG +3bps and JACI HY +9bps WoW. Sovereigns tracked the UST strength, with KOREA and MALAYS yields 4-11bps lower while INDON and PHILIP yields about 2-5bps lower from 5y point onward WoW.

Ø  Rating change: Sime Darby Bhd was downgraded to Baa3 from Baa1 with a stable outlook by Moody’s on nearing completion to create standalone entities for its plantation and property businesses. Key rationale was the significant reduction in scale and cash flows. The agency expects adjusted debt/EBITDA and EBIT/interest to be at ~2.0x and ~6.0x respective, above negative triggers of 3.5x and 5.0x respectively.

·         CDS: EM Asia 5y CDS were mixed, with China +3bp wider, Indonesia and Korea -1bp and -3bps tighter while Malaysia, Philippines and Thailand flat WoW.