Thursday, March 30, 2017

Risk-off Sentiment as UK Triggered Article 50

30 March 2017

Credit Markets Update
Risk-off Sentiment as UK Triggered Article 50 
MYR Credit Market:
¨      MGS yields spiked following global risk off. The auction for new 7.5y MGS 9/24 will close today with WI was seen quoted at 4.08/4.03%. Secondary trades remained lacklustre with MYR1.4bn changing hands as investors on cautious tone amid the formalization of Brexit process yesterday. The MGS curve bear flattened with the 3y rising 10bps to 3.54% while the 10y rose 4bps to 4.13%. The MYR strengthened 0.9% against GBP to 5.4949 as the United Kingdom formally triggered the Article 50 to leave the European Union leading a global risk-off. This sentiment, however, weakened the MYR against the greenback mildly to 4.42 level (+0.14%).
¨      Corporate market stayed active. Volume totalled MYR685m yesterday. Over the banking sector, Public ’18 was unchanged at 3.98% on MYR100m trades, while UOBM T2 ‘25c20 increased 4bps to 4.51%. Power bonds generally ended flattish from SEB ’19-24 and TBEI ’26-32. Elsewhere, yields increased for GG bonds such as Johor Corp ’22 (+11bps to 4.12%) and GovCo ’26 (+25bps to 4.40%).
APAC USD Credit Market:
¨      UST traded higher today as the global risk-off. The formal lodgment of Article 50 leading to the Brexit added to the already weak global sentiment. Over in US, the government funding for federal agencies expire at midnight 28-Apr. Complicating this situation is the emergency request includes $30 billion in extra funding for defense programs and $3 billion for border security, including $1.5 billion for his proposed wall on the U.S.-Mexico. 2y note rallied to 1.27% (-3.2bps), while 10y bond yield fell by 4.1bps to 2.38%. The USD28 billion 7y Treasury auction garnered strong demand, with BTC of 2.56x, the high yield was at 2.215%. The DXY index advanced to 99.99 (+0.29%).
¨      iTraxx AxJ IG index tightened marginally by 0.6bps to 95.0bps, leading by Bank of China, CNOOC Ltd and PETMK. The IG space was lower at 172.7bps (-1.6bps), while the HY credit spreads rose to 6.49% (+1.5bps).
¨      The primary market resumes after a slow week. WEA Finance LLC (issue rating: A3/NR/BBB+, guarantor: Westfield Corporation Limited) priced USD500m 5y bond at T+125bp area, against its IPT at T+137.5bp area. ICBC Financial Leasing (issue rating: A2/NR/A) sold USD2bn bond in two parts – i) USD1.15bn 3y bond at T+150bp area, ii) USD850 5y bond at T+152.5bp area. Elsewhere, Hyundai Capital America (Baa1/NR/A-) raised USD1.1bn by issuing three-tranche bonds (refer to Table 2).
¨      Over in ratings, Moody’s upgraded China Aoyuan Property Group Limited’s LT rating from B2 to B1, with stable outlook. This is to reflect that the company’s credit metrics are expected to improve over the next 12 months. Its revenue/adjusted debt is likely to improve to 70%-75% in 2017 (57% in 2016), while the EBIT/interest coverage will increase to approximately 2.5x-3.0x in 2017 (2.2x in 2016). Fitch upgraded Fufeng Group Limited’s LT rating from BB to BB+ to reflect improved profitability and lower leverage. Fitch expects the company’s FFO to increase from higher sales and earnings from improving efficiency in production.  

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Real GDP Growth To Sustain in 2017

Economic Research
30 March 2017

Economic Update

Vietnam’s real GDP slowed to a growth of 5.1% YoY in 1Q17, from a growth of 6.2% in 2016 and compared to +5.5% in 1Q16. As a whole, we expect Vietnam’s real GDP to grow by 5.9% in 2017, albeit at a more moderate pace from +6.2% in 2016, and compared to +6.7% in 2015. This is premised on:
    i.   Resilient exports due to participation in free trade agreements (FTAs);
   ii.   Strong inflows of foreign direct investments (FDI);
  iii.   Robust private investment; and
  iv.   Economic restructuring and institutional reform.

The slowdown in 1Q was mainly on account of a sharper decline in mining activities, while manufacturing, construction and services sectors slowed during the month.

Economist:  Vincent Loo Yeong Hong  | +603 9280 2172
Economist: Aris Nazman Maslan | +603 9280 2184

· Healthy demand. Today’s 7y MGS 9/24 auction drew a bid/cover of 2.064x on an

Results: MGS 9/24 New Issue
·         Healthy demand. Today’s 7y MGS 9/24 auction drew a bid/cover of 2.064x on an expected MYR4b size (MYR3b auction + MYR1b private placement). The demand level is considered healthy and better than the average bid/cover of 1.75x in the previous three 7y MGS auctions in 2016. Weak sentiment, however, had somewhat weighed on the curve and with new supply the 7y10y sector had experienced a relative cheapening of 3-4bps WoW.
·         Successful yields averaged 4.059% which is within the pre-auction WI range of 4.06/4.04 and the cut-off yield was 4.072%. MGS 9/24 replaces the existing MGS 8/23 as the new 7y MGS benchmark but the new bond has a relatively small free float more so with MYR1b being privately placed.
·         Next auction is the new issue of 20y MGS 4/37. We estimate a size of MYR3b.

Bid to cover:            2.064
Highest yield:           4.072%
Average yield:         4.059%
Lowest yield:           4.030%
Cut off:                   64%

It was a rather mixed session for the USD which strengthened against the EUR, CHF and to some extent GBP,

GBL: Mixed

Global Markets Daily
by Saktiandi Supaat

FX Research

It was a rather mixed session for the USD which strengthened against the EUR, CHF and to some extent GBP, whilst weakening against Asians and AUD. One reason could be the assurance from ECB that easy policy is likely to remain for a long time. Fed Rosengren expressed optimism in the economy overnight and commented that four hikes may be needed in 2017. AUD outperformed, last seen around 0.7670, underpinned by positive risk sentiments. Oil also traded higher with WTI last printed U$49.50/bbl ...

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