FW: RHB FIC Credit Market Monthly Review - 7/2/18

 

 

7 February 2018

 

Credit Market Monthly Review

December 2017

 

BNM Raised OPR 25bps to 3.25%; Fed, ECB and BoJ Maintained Rates.

 

Market Review

¨   MYR Credit Market: BNM raised OPR by 25bps bringing the current level to 3.25%, as part of normalisation plan. MGS consolidated in line with global yield curves that were pressured upwards, especially in the belly of the curve. Govvies recorded an inflow of MYR4.69bn where foreign ownership of Malaysian bonds increased MYR2.65bn in the month of Dec-17. Meanwhile, government bonds underperformed over the month at 0.16% with the other segments seeing stronger performances. The year also started with a month of strong primaries, a combined MYR9.56bn of primaries for the month, compared to MYR1.5bn in Jan 17.

¨   APAC USD Credit Market: US Treasuries yields marginally higher on hawkish Fed; global tightening rhetoric continues to draw the attention of the market. The US Treasuries traded on a softer tone over the month amid heightening expectation of less accommodative policy, strong supply of Treasuries as well as expansionary fiscal policy from revamped tax bill that have led to weaker performances for the US bonds market. The front end of the curve climbed higher, pushing the yields on 2y UST past 2.00% level for the first time since 2008. Meanwhile, the longer end of the curve continued its upward momentum which had driven the longer tenure 30y UST closer to the 3.00% mark. The 5y30y spreads have contracted to 42bps, shedding about -11bps from the previous month. Meanwhile, the Asian IG CDS via the iTraxx AxJ IG sustained tightening as levels fell about -2bps MoM to end at new lows of 65bps.

                                             

Outlook

¨   With growth firming in the DM, and as this continues to lead to synchronised economic growth in EM countries, coupled with muted inflationary concerns, the month of January saw strong rallies in the equities market, a fall in global bond markets and a weakness in the USD. As the Feb FOMC meeting cleared, with no change in the language, focus of international investors remains firmly set on the other major central banks globally and the prospects that inflationary pressures and interest rate differentials may lead to interest rate hikes. We are reaffirming our call to remain defensive ahead of a rising global rates environment. Though interest rates have risen, investors should continue to remain vigilant and maintain a duration neutral portfolio strategy. Tactically, we believe opportunities are beginning to emerge in the MYR bond space allowing for buying opportunities as any excessive upwardly movements may lead to tactical buying on dips.

 

Table 1: Index Movements

Indices	31-Jan	Changes (bps)
		1M	3M	YTD
iTraxx AxJ 5y IG	65.0	-2	-10	-51
UST 2y	2.14	26	54	95
UST 5y	2.51	31	50	59
UST 10y	2.71	30	33	26
SOR 2y (%)	1.56	3	11	-20
SOR 5y (%)	2.00	16	-4	-40
SOR 10y (%)	2.39	24	2	-51
MGS 3y (%)	3.38	5	-8	-11
MGS 5y (%)	3.63	10	-4	-2
MGS 7y (%)	3.93	5	-1	-14
MGS 10y (%)	3.95	4	2	-25
AAA 5y Spread* (bps)	71	-9	6	-4
AAA 10y Spread* (bps)	75	-3	0	23
AA 5y Spread* (bps)	102	-9	5	-11
AA 10y Spread* (bps)	110	-2	0	14

Source: Bloomberg, BNM, RHBFIC        *MYR-denominated bonds