FW: RHB FIC Credit Markets Update - 8/11/17

 

 

8 November 2017

 

Credit Markets Update

                                               

UST Flattening Extends; BNM Forex Reserves Stood at USD101.5bn

MYR Credit Market:

¨      BNM forex reserves rose. Benchmark 3y MGS largely unchanged at 3.49% while benchmark 10y MGS narrowed further -1.3bps to settle at 3.98%. Meanwhile, the MYR continued to strengthen against the greenback gaining a tad overnight (+0.05%) to end at 4.2295/USD on the back of steady increase in Brent Crude oil prices which hovered around the USD64/bbl level. Over to economic data, BNM international reserves rose to USD101.5bn as at end-Oct 2017 compared to USD101.4bn recorded in mid-Oct 2017 of which is expected to be sufficient to finance 7.6 months of retained imports and is 1.1 times the short-term external debt.

¨      Trading activities picked up strongly in the govvies space as volume reached MYR2.1bn. Short dated securities remained active as volume amassed under 3y maintained above 70% of the total trades. Off-benchmarks MGS 03/18 and MGS 02/18 continued to be among the most actively traded securities as volume surged to MYR435m and MYR136m respectively with the 03/18 closing +1.6bps higher at 2.916% while the 02/18 narrowed -9.4bps lower at 2.932%. Other top traded off-benchmark securities were MGS 10/20 and MGS 07/20 which saw MYR167m and MYR140m change hands to settle at 3.44% and 3.45% respectively with yields receding -4.5bps and -6.7bps from the previous day. 3y benchmark GII 04/20 also saw a relatively high demand with trades amounted to MYR140m closing -1.7bps lower at 3.489%.

¨      Corporate segment recorded stronger secondary flows at a healthy MYR510m in volume. Top traded securities were among the FIs issuers with CIMB Pnc5 and ALLIANCEB Pnc5 recorded MYR60m at 5.21% (+24.3bps) and MYR50m at 5.95% (-22bps) respectively. RANTAU 10/22 and STMSB 07/18 both saw transactions of MYR40m each settling at 4.21% (+7.3bps) and 4.30% (unchanged) respectively.  Other top traded was GAMUDA 10/18 with volume of MYR30m recorded at 4.15% (+7.4bps).

¨      Over to ratings, RAM has reaffirmed the EXIM Sukuk global-ratings of A2/Sta on the USD1bn Multi-currency Sukuk Programme in addition to funding conduit of EXIM Bank of Malaysia (MEXIM), the AAA/Sta ratings of MEXIM. Being the funding vehicle of EXIM Bank of Malaysia (MEXIM) and wholly owned by the Government of Malaysia (GoM), the ratings was driven by MEXIM's asset quality and performance. MEXIM's gross impaired-loan (GIL) ratio has increased YoY recording 13.2% as at end-December 2016 from 7.7% as at end-December 2017 due to the worsening situation in the oil and gas sector. Its credit-to-cost ratio improved slightly by 0.3% YoY from 2.7% as at FY15 to 3.0% as at FY16 contributed by the greater impairment provisions on its loan exposures. Despite significant provisions, its GIL coverage ratio deteriorated to 37.5% as at end-December 2016 from 59.5% as at end-December 2015, significantly below banking industry average of 86.5%. However, the Bank's tier 1 capital ratio of 18.2% as at end-December 2016 is expected to ease the loan-quality indicators in 2017. Elsewhere, RAM reaffirms Bank of Tokyo-Mitsubishi UFJ's (BTMU) AAA/Sta ratings of USD500m Multi-currency Sukuk Wakalah Programme driven by the potentially great support from its Japan-based parent Mitsubishi UFJ Financial Group, Inc (MUFG). BTMU Malaysia's loan base expanded 9% in the 15-month fiscal period ended 31 March 2017 supported by placements from its parent under a cash-collateral scheme which had also helped the Bank manage the credit risks on its large exposures. As at end-March 2017, the Bank recorded a robust common-equity tier-1 capital ratio of 16.7%.

APAC USD Credit Market:

¨      UST long end rallies extend flattening of the curve. The USTs continued to extend a period of flattening led by a rally in the long end of the curve which has started since the previous week. The flattening of the yield curve, which was led by expectations of upcoming Fed rate hikes and refunding plans by the Treasury for 4Q17, has now been largely concerned with the tax reform plan bill in the Congress. In economic news, the US JOLTS job opening data continued to be positive rising 6.09m in Sept, remaining above 6m for the fourth consecutive month. The 2y USTs remained pressured gaining +0.8bps to 1.63% while the 10y USTs remained unchanged at 2.32% (-0.2bps). The 30y USTs continued to rally -1.7bps to 2.78%. The DXY on the other hand saw a rally of +0.16% to end the day at 94.91. Senate Republicans are slated to unveil their tax bill, with the exact date still unknown. News that there may be a one (1) year delay in the enactment of the bill should see a strong support once more in the UST market. Market will also monitor developments of President Trump's address to the Korean National Assembly later today as part of his Asian tour before he leaves for China.

¨      Credit spreads remain largely unchanged despite a bull flattening in the UST curve the day before. The Asia ex Japan IG credit spreads and Asia ex Japan HY bond yields remained steady at 161.1bps (+0.1bps) and 6.61% (unchanged) overnight. The iTraxx AxJ IG spreads tightened -0.3bps to 76.60bps. Led by increased concerns on President Trump's visit to South Korea, Korean corporates led the widening of CDS curves as GS Caltex Corp, KT Corp, SK Telecom Co Ltd, and Korea Electric Power Corp, saw widening of +2.4bps to +3.8bps. Korean Fis Kookmin and Woori Bank saw CDS tighten -3.7bps and -0.3bps respectively.

¨      In the primary market, Far East Consortium International (NR) tapped the market for USD150m 5.5y bonds at 4.50% v IPT of 4.625%. KWG Properties Group (B1/B+/BB-) printed USD300m 7nc4 bonds with a coupon 5.875% receiving a BTC of 3.3x. Yunnan Energy Investment Overseas Finance Company Ltd (NR/NR/BBB) which enjoys a Keepwell Agreement with Yunan Provincial Energy Investment Group Co issued USD600m bonds split into two tranches of bonds with maturities of 3y and 5y. The former was priced at T+215bps (IPT of T+245bps) and the latter at T+235bps (IPT of T+265bps). WTT Investment (B1/NR/BB-) is on an investor roadshow with plans for USD bonds whereas China Development Bank (A1/NR/NR) has plans to issue 5y green bonds.

¨      Over in ratings, S&P revises the outlook of Shinkong Insurance to A-/Pos from A-/Sta. The outlook reflects S&P's view that there has been a noticeable decrease in unhedged forex risk exposure, which will enhance the financial risk profile if sustained. This follows a more conservative hedging policy in 1H17 by the management and the climb of the TWD against the USD. The unhedged forex exposures are now estimated at less than 10% of total assets as end Jun-17, more in line with the peer average ratio of 5%.

 

 

 

 

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