FW: RHB FIC Credit Markets Update - 21/2/18

 

 

 

21 February 2018

Credit Markets Update

           

Danainfra Issues MYR4bn; FOMC Minutes Watched.

MYR Credit Market:

¨      MGS and MYR retraced as a fall in USTs lead USD rallies. More global markets resumed following the Lunar New Year holidays and the US President Day break, leading to the repricing of USTs, along with a rally in the USD, which took its toll on local currency yield curves and currencies. The MGS yield curve rose across the tenors. The 3y MGS weakened as yields picked up +0.7bps while the 10y MGS saw yields edge up +1.9bps. The MYR traded lower against the greenback at 3.9035/USD (-0.32%).

¨      Govvies trading activities picked up as just under MYR1.9bn trades were recorded. Off-benchmark securities saw strong demand as MGS 09/21 and MGS 09/25 recorded trades worth MYR266m and MYR143m, crossing the day at 3.61% (-0.3bps) and 4.01% (+2.3bps). The benchmark 5y and 7y MGS 09/24 and MGS 11/27 each saw MYR159m and MYR193m change hands at 3.99% (+3.6bps) and 4.03% (+1.9bps) while the benchmark 3y GII 04/20 closed the day weaker at 3.60% (+2bps) on MYR127m trades.

¨      Secondary flows saw trade volume for corporate bonds/sukuks pick up to MYR255m. Short-dated BUMITAMA 03/19 traded stronger at 4.46% (-0.8bps) on MYR30m trades. Long dated PRASARANA 09/37, on the other hand, was traded weaker at 5.03% (+6bps) on MYR30m trades. CTX 27s and KESTURI 22s were traded mixed at 5.03% (-5.3bps) and 4.63% (+3.8bps) as MYR20m of each security traded hands.

¨      In the primary space, Danainfra Nasional Berhad tapped the market for an additional MYR4bn from its MYR46bn GG IMTN programme, bringing total drawdown to MYR44.6bn. The bonds were issued in five (5) tranches with maturities of 7y, 15y, 20y, 25y and 30y, and spreads between +39 to +49bps over their corresponding last traded benchmark MGS securities at issuance.

APAC USD Credit Market:

¨      US Treasuries bear flattened. The USTs started the first trading session of the week with higher yields as markets reopened following the Presidents Day holiday where market participants were mostly cautious ahead of the release of Jan FOMC minutes along with the impending debt supply. Upward pressure was seen at the front end of the curve after a modest 2y note auction. The 2y UST yields jumped to 2.22% (+2.92bps). The 10y UST on the other hand, continued to hover close to the 2.90% mark as yields ended the day at 2.89% (+1.47bps). The longer-dated 30y UST resumed weakening as yields climbed to 3.15% (+2.14bps). The greenback extended gains on the back of rising yields which saw the DXY edge higher to close at 89.7 (+0.69%). Investors will look into today’s Fed minutes for possible changes to the policy outlook though a March rate hike is widely expected.

¨      The iTraxx AxJ IG pared gains as credit spreads reversed to 69.3bps (+2.2bps). Over in CDS space, leading the rally for the day with spreads reduction of approximately -5.4bps was Korea Electric Power Corp. This was followed by Swire Pacific Ltd., CapitaLand Ltd., and GS Caltex Corp. which saw CDS levels decline between -2.3bps and -2.7bps. Leading the widening, on the other hand, was Singapore FIs United Overseas Bank Ltd. with spreads increase of nearly +3.8bps, trailed by DBS Bank Ltd. subdebt which saw CDS levels rise close to +3.7bps. Chinese Fis Industrial and Commercial Bank of China Ltd. and Bank of China Ltd. were seen paring gains with similar spreads growth of around +3bps. Over in sovereign space, CDS levels for Malaysia, Philippines, Indonesia and China unwound their previous rally to rise between +1.5bps and +3.5bps.

¨      Moody’s has placed a review for downgrade on Baa3 rated Punjab National Bank (PNB). This is largely driven by the allegation of fraudulent transactions,  posing a risk to the bank’s credit profile. PNB recently announced to the Indian stock exchange that it found a number of unauthorised transactions of about INR114bn, underlining the bank’s possible flaws within their operational controls and corporate governance. These transactions represent a contingent liability though the extent of the impact depends on the Indian law. Moody’s sees this as a possibility for the bank’s profitability to be pressured. The transactions may significantly deteriorate the bank’s capital position, which in turn could drop below minimum regulatory requirements, should the bank needed to provide for the entire exposure (these fraudulent transactions accounted around 230bps of its risk-weighted assets as of Dec 17). Moody’s also believes that PNB may be required to raise capital externally to meet Basel III capital requirement of 8% CET-1 ratio by Mar 19, which stood at 8.05% as of Dec 17. Meanwhile, access to the equity capital market is also limited after its share price plummeted nearly 30% to date.