FW: RHB FIC Credit Markets Update - 20/2/18

 

 

 

 

20 February 2018

Credit Markets Update

           

MGS and MYR Rally As Trades Resume; Focus on FOMC Minutes.

MYR Credit Market:

¨      MGS and MYR rally on resumption of trades. The market resumed trading following the Lunar New Year holidays, along with the rally in USTs towards the end of the week, the MGS saw a rally across the tenors save for the 10y MGS. The 3y MGS rallied -4.9bps to close the day at 3.36%, while 10y MGS edged up +4.4bps to 4.01%. The MYR strengthened +0.08% against the greenback, closing the day at 3.8910/USD, ahead of most markets in EM Asia, still closed for the Lunar New Year.

¨      Coming out from a long Chinese New Year break weekend, trading activity remained lacklustre. Govvies trading activities slowed down to MYR1.2bn. Most actively traded for the day was 5y benchmark MGS 10/22 with total transactions of MYR254m, dealt at 3.56% (-1.8bps). 3y benchmarks MGS 02/21 and GII 04/20 on the other hand, recorded trades of MYR112m and MYR115m respectively to trade at 3.36% (-4.9bps) and 3.58% (+0.1bps).

¨      Secondary flows saw lower trade volume for corporate bonds/sukuks to just over MYR200m. Short-dated securities dominated trades as MAYBANK 01/24 subdebt callable 01/19 saw MYR40m change hands at 4.54% (-2.7bps) while PKNS 08/18 was traded stronger at 4.25% (-5.9bps) on MYR20m trades.  Other notable trades include CTX 24s and BGSM 25s, both recorded trades of MYR20m each while trading at 4.86% (-4.5bps) and 4.76% (-0.5bps) respectively.

APAC USD Credit Market:

¨      US markets closed in observance of President Day. As concentration continues to be on the release of Jan FOMC meeting minutes tomorrow in light of fresh signs of accelerating inflation, the latest trade tension mainly between US and China will also be the subject to heightened scrutiny while President Trump continues to pursue his protectionism strategy. Following the import tariffs imposed on solar panels and washing machines, the US Commerce Department proposed to enact trade restrictions on aluminum and steel imports recently, a potential trigger for global trade war, where Trump administration will have to decide to implement this by Apr 18. As volatility concern slowly diminishes, market participants are expected to stay focused on hints for possible changes to US economic direction on the back of shorter trading week with relatively light economic data releases.

¨      The iTraxx AxJ IG credit spreads rallied further to 67.1bps (-2.2bps). Over in CDS space, leading the rally for the day was South Korea’s sovereign which saw spreads tighten approximately -3.7bps. This was followed by Indonesia, China, Malaysia and Philippines as levels fell between -1.6bps and -2.3bps. Meanwhile, Chinese Fis Industrial and Commercial Bank of China Ltd. as well as Bank of China Ltd. saw similar spreads decline of about -2.7bps.

¨      Moody’s has revised the outlook on Woodside Petroleum Ltd. upward from Baa1/Neg to Baa1/Sta. This is driven by Moody’s expectation that the proposed underwritten AUD2.5bn equity raising, to fund the acquisition of Exxon Mobil’s 50% stake in the Scarborough LNG project, coupled with improving production levels and oil prices would support Woodside’s credit metrics over the next 12-18 mths. This despite Woodside recording lower RCF/net debt in 2017 of about 24-25% compared to Moody’s initial projection level of at least 35%. Moody’s expects this to improve to approximately 35-40% in 2018 and further increase in 2019. Moody’s opines that Woodside would maintain its conservative financial policies despite the likelihood of higher investment expenditure beyond 2018. Woodside recorded 3% higher adjusted EBITDA in 2017 from 2016 contributed by higher realised prices and low unit costs that had offset lower production levels. FCF breakeven levels remained below current prices as the equivalent of a Brent oil price of around USD36/bbl in 2017.