FW: RHB FIC Credit Markets Update - 28/2/18

 

 

28 February 2018

Credit Markets Update

           

USTs Fall After Fed Powell Testimony; Malaysia CPI Jan 18 Print Today.

MYR Credit Market:

¨      MGS ended mixed; USD strengthens. The reopening of 10y MGS 11/27 garnered a decent BTC of 2.07x with an average yield of 4.055%, a healthier demand compared to similar auctions in Jul 17 and Dec 17. The yields on longer end of the curve fell further which saw the 10y and 30y MGS supported at 4.03% (-1.9bps) and 4.82% (-1.3bps) ahead of Malaysia’s inflation reading Jan 18 scheduled later today. The 3y MGS yields ended lower to 3.38% (-0.4bps) while the 5y MGS weakened to 3.62% (+2.1bps). The MYR seen paring gains as it traded -0.13% lower against the greenback, closing at 3.9080/USD, on the back of USD rebound.

¨      Govvies trading activities picked up strongly with transactions recorded at MYR4.5bn. Trade volume for govvies tripled from the previous day with concentration largely skewed towards the reopened 10y MGS 11/27, top traded security for the day which amounted to MYR1.1bn. The 10y benchmark MGS last traded stronger at 4.03% (-1.9bps). We opine 10-year benchmark MGS above 4.00% seen attracting some real money interest.  The benchmarks MGS 3y 02/21 and 5y 03/22 saw MYR130m and MYR161m change hands each where yields ended mixed at 3.38% (-0.4bps) and 3.62% (+2.1bps) respectively. The benchmarks 5y, 7y and 15y GIIs were also actively traded with MYR111m for the 04/22, MYR130m for the 08/25 and MYR220m for the 06/33 transacted respectively, dealt at 3.89% (-0.1bp), 4.11% (-0.2bps) and 4.59% (-0.7bps). The off-benchmarks MGS 11/26 and 08/23 also drew strong trade interest with total trades of MYR425m and MYR414m with the respective yields edged up to 4.11% (+0.7bps) for the longer-dated security and the former at 3.83% (+2bps).

¨      Secondary flows remained robust as trade volume recorded for corporate bonds/sukuks just under MYR520m. The most actively traded security was TENAGA 8/37 with MYR135m recorded, rallying to 5.10% (-0.8bps). This was followed by DANAINFRA 5/32 and 4/45 with combined transactions of MYR70m where yields climbed to 4.85% (+4.5bps) and 5.27% (+6.8bps) respectively while TMSB 22s, 25s, 26s, 33s and 35s saw combined trades of MYR60m which saw yields ending mixed between 4.60% and 5.50% (ranging -7.1bps and +1.8bps). Other notable trades were DANGA 1/33 and CIMB THAI 7/24 with MYR50m changed hands each, rallying to 4.93% (-1.1bps) and 4.79% (-4.3bps) respectively.  

¨      Over in primaries, Inverfin Sdn Bhd has issued MYR160m 6y-note under its AAA rated MYR185m Tranche A MTN programme with coupon rate of 4.98%.

APAC USD Credit Market:

¨      US Treasuries yields on the rise after Fed Chair Powell testimony. The USTs yields were seen rising across the tenure, led by the belly of the curve, pressuring the 2y, 5y and 10y USTs upward to 2.26% (+3.81bps), 2.66% (+5.04bps) and 2.89% (+3.11%) respectively following the recent remarks made by new Fed Chair Powell at his testimony debut before the House Financial Services Committee. He expressed confidence on the strengthening economic conditions in the US and inflation to accelerate on a “sustained basis” while supporting the need for gradual rate hikes going forward. He will appear before the Senate Banking Committee on Thursday. The USD regained traction which saw the DXY move up to 90.4 (+0.56%). Meanwhile, economic data revealed mixed results. Advance goods trade balance deficit Jan 18 unexpectedly deteriorated to –USD74.4bn (consensus: -USD72.3bn) from revised figure of –USD72.3bn. Wholesale inventories beat estimates as it rose 0.7% (consensus: 0.4%) from 0.6% previously. Durable goods orders, however, declined more than initially projected by 3.7% (consensus: -2%) from an increase of 2.6% during the same period. The Conference Board’s consumer confidence soared to new highs with a reading of 130.8 from revised 124.3. 

¨      The iTraxx AxJ IG credit spreads rallied further to 67.7bps (-0.5bps). Over in CDS space, leading the rally was CapitaLand Ltd. which saw CDs levels fall approximately -2.5bps. Seeing a similar decline rate was PCCW-HKT Telephone Ltd. and Swire Pacific Ltd. with spreads reduction about -1.3bps, trailed by Chinese Fis China Development Bank and Export-Import Bank of China with drop rate close to -1.1bps. Other notable players include Kookmin Bank and Korea Electric Power Corp. with identical tightening around -1bp. Leading the widening, on the other hand, was State Bank of India/London which saw CDS levels deteriorate nearly +2.3bps.

¨      Moody’s has changed the outlook on IDBI Bank Ltd. upward from B1/Sta to B1/Pos. This is driven by possible improvement to its capital position on the back of capital infusion from the Indian government. IDBI is expected to receive INR78.81bn in new capital by Mar 18 as part of the INR1.53trn recapitilisation plan. Moody’s forecasts IDBI’s CET-1 ratio increasing to approximately 9.8% based on the risk weighted assets as of Dec 17, though likely to incur losses over the next few quarters due to high provisioning costs. Moody’s, however, opines IDBI’s CET-1 ratio to meet minimum Basel III capital requirements by Mar 19. IDBI recorded slightly lower NPA ratio in the recent quarter ending Dec 17 at 24.7% compared to 25% in the quarter ending Sep 17. NPA also stabilised at 14.3% during the same period. Moody’s has also revised the outlook on John Deere Ltd/Australia (Deere) upward from A2/Neg to A2/Sta. This reflects Moody’s expectation that Deere will strengthen its position in the industry while financial performance likely to be buttressed by the improving agriculture markets conditions. This is further supported by its Shareholder Value Added (SVA) model that is intended to moderate impacts from cyclical downturns on financial performance. Deere’s liquidity as of Jan 18 remained healthy with combined liquidity sources of around USD15.4bn, which includes USD4.4bn in cash and marketable securities, USD7.5bn in committed credit facilities as well as USD3.5bn 3-yr securitization conduit. Nonetheless, Moody’s does not see any upgrade at this juncture given the inherent cyclicality in core markets.