FW: Credit Market Watch: Summary for week ending 2-Mar

 

Credit Market Watch: Summary for week ending 2-Mar

·        MYR Credit:
Ø        MGS yields came off from recent highs and the curve was down 5-8bps WoW. 10y MGS yield declined to around 4.00%. There was, however, some profit taking in corporate bonds especially at the long end where yields widened 1-2bps WoW. Weekly trading volume in PDS market totalled MYR1.9b.
Ø        Prasarana: Priced MYR1.8b multi-tranche government-guaranteed bonds with tenors of 7y, 10y, 15y and 20y at final prices of 4.39%, 4.62%, 4.94% and 5.12% respectively, providing decent concession with spreads over MGS of around 45-60bps. Tranche size ranged between MYR300m to MYR600m. An additional MYR1.2b, 25y tenor, was raised through private placement.
Ø        Macro: Domestic inflation eased to 2.7% YoY in January (Dec: 3.5%) attributed to the slower rise in fuel and food prices. Core inflation remained steady at 2.2%. Our economic research maintains 2.8% headline inflation forecast for 2018 (2017: 3.7%) taking into account the high base effect and lesser impact from imported inflation given stronger Ringgit. With inflation easing, we believe OPR will stay at 3.25% for the remaining year. Money supply (M3) growth remained healthy at 4.6% YoY in January (Dec: 4.7%) helped by increase in external reserves, and BNM net FX shorts position declined for a 9th consecutive month to USD8b net short at end-Jan 2018 (Apr 2017: USD19.1b net short).
Ø        Relative value: UMWH 2026 offered some value last trading at 4.91%, which is 11bps wider than our AA2/AA fitted line, compared to Bright Focus 2029 which dealt at 4.97%.
·        Asian Credit:
Ø        UST curve was little changed WoW with the 10y yield steadied at around 2.86% after giving up earlier gains. The US Fed’s preferred inflation gauge, core PCE price index, printed at a stable 0.3% MoM and 1.5% YoY that met market consensus.
Ø        Dominating headlines last week was the US plan to impose tariff of 25% on steel and 10% on aluminium imports. Such measure is expected to court retaliation by other countries raising fear of escalating into trader wars (if we try to extrapolate from here) which is growth negative to global economies, but such thought remains at early stage with limited near-term impact on trade and growth. At first it caused a mild risk-aversion sentiment in market with lower UST yields and strong USD, but the movements have since been reversed.
Ø        China’s key economic targets in 2018: China kick-started “Two Sessions” meeting last weekend and in the government’s work report, the following key economic targets are set for 2018: steady GDP growth of around 6.5% (2017: 6.9%), CPI inflation goal of around 3%, creating 11 million new urban jobs and the registered urban jobless rate within 4.5%, a lower fiscal deficit/GDP ratio at 2.6% compared to a target of 3.0% in 2017. On deleveraging effort, there is a continuation of such theme with an aim to achieve considerable progress in supply-side structural reform, stable economic leverage and to be systematic and effective in the prevention and control of risk. Also, it aims to reduce taxes on businesses and individuals by more than CNY800b.
Ø        Asian USD credit spreads were wider, with JACI composite +6bps, JACI IG +5bps and JACI HY +3bps WoW. Elsewhere the performance of regional sovereigns was mixed, with INDON and PHLIP yields higher by roughly 2-5bps but CHINA and KOREA were tighter.
Ø        Rating changes: 1) Fitch raised Tenaga Nasional Bhd (TNB)’s rating to A- with a stable outlook, equalising to that of Malaysia’s, citing strong linkages with the government. The upgrade didn’t come as a surprise and somewhat overdue in our view, given TNB’s high strategic importance role in power generation, transmission and distribution of electricity in Malaysia as well as an ownership structure that gives the government an effective control via SWF/GLIF such as Khazanah, EPF, PNB and KWAP. On a standalone basis Fitch assesses TNB two notches lower at BBB. Moody’s rates TNB similarly at A3 while S&P is one notch lower at BBB+. 2) Greenland Holding Group Company’s rating was downgraded to BB- from BB by Fitch, citing sustained high leverage at above 60% (77% at end-Jun 2017) as measured by net debt/adjusted inventory on aggressive land-banking activities and more debts on non-property businesses. Further negative action is possible if leverage remains high.
·        CDS: EM Asia 5y CDS spreads were slight narrower in general, with China, Indonesia, Philippines and Thailand -1bp each while Korea and Malaysia unchanged WoW.

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Regards,

Winson Phoon, ACA
(65) 6231 5831
winsonphoon@maybank-ke.com.sg
 
Se Tho Mun Yi
(603) 2074 7606
munyi.st@maybank-ib.com

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