FW: RHB FIC Credit Markets Update - 20/3/18

 

 

20 March 2018

Credit Markets Update

           

Modest Trading Volume Ahead of US FOMC.

MYR Credit Market:

¨      Lacklustre trading ahead of US FOMC. As the market focuses on the upcoming FOMC meeting in the middle of the week with largely consensus expectations of a rate hike, investors have mostly remained on the sidelines, looking forward to the Fed’s forward projections. Bond yields remains range-bound although upward pressure risks is expected to persist clouded by concerns over weakening global yield curves. The 3y MGS yields picked up +1.1bps to 3.40% while the 10y MGS yields edged up 1bp to 3.95%. In line with many of its neighbours in EM Asia, the MYR continued to trade lower against the greenback to end the day at 3.9170/USD (-0.25%). On the macro front, the upcoming CPI release scheduled tomorrow is expected to moderate, another key focus for investors.

¨      Govvies trades fell to MYR1.1bn. Among benchmark issuances, the newly 7y benchmark MGS 03/25 weakened yesterday to 3.85% (+2.9bps) on trades worth MYR130m. This compared to the 7y benchmark GII 08/25 which was largely unmoved at 4.00% compressing the yield spread between the two securities to circa 15 bps. Other notable trades include the off-benchmark GII 03/21 which saw MYR339m change hands stronger at 3.78% (-1.8 bps).

¨      Secondary flows for corporate bonds/sukuks also weakened to record only MYR80m. Long dated TELEKOM 27s were traded -3bps stronger at 4.59% on trades totalling MYR30m. Other notable trades include BUMITAMA 03/19 which on MYR25m trades rallied to 4.46% (-0.9 bps). Trading momentum may potentially pick-up post US FOMC meeting once investors garner better clarity on upcoming future interest rate normalisation expectations from scheduled US dot plot projections release.

APAC USD Credit Market:

¨      US Treasuries yields continued to edge higher ahead of FOMC. Given the lack of economic data, USTs extended losses from the previous week amid a resumption of sell-offs as market participants braced for the start of the 2-day Fed policy meeting where a 25bps interest rate increase is largely priced in. After being pressured lower through the day, USTs recovered some of the losses on flight-to-safety trade after equities tumbled. The 2y UST yields surged higher to end the day at 2.31% (+1.66bps) while the 10y UST yields moved up to 2.86% (+1.10bps). Investors are expected to remain on the sidelines where the tone of the policy meeting likely to be the catalyst for markets given the normalisation rhetoric under new Fed Chair Jerome Powell. The USD weakened against most of major currencies as the DXY plummeted to 89.8 (-0.52%).

¨      The iTraxx AxJ IG credit spreads inched higher to 66.7bps (+0.5bps). Leading the rally for the day was State Bank of India/London which saw CDS levels decline approximately -3.6bps. Industrial and Commercial Bank of China Ltd., Swire Pacific Ltd., Sun Hung Kai Properties Ltd., Hongkong Land Co. Ltd. and Bank of China Ltd. saw similar spreads decrease of about -1.1bps. Leading the widening, on the other hand, was Samsung Electronics Co. Ltd. where CDS levels rose around +3.1bps. This was followed by Reliance Industries Ltd. and Industrial Bank of Korea which saw CDS levels jump close to +2.6bps and +2.3bps respectively. Seeing a similar spreads increase of approximately +1.5bps include United Overseas Bank Ltd. (sub), GS Caltex Corp. and DBS Bank Ltd. (sub).