Credit Markets Update
10.5y GII 10/28 Auction Focus Attention.
MYR Credit Market:
¨ New benchmark 10.5y GII 10/28 to focus attention. The continued upswing in global govvie yields the day before took its toll on the MYR bond market. 3y MGS yields rose +1.3bps to 3.79% as the 10y MGS weakened to 4.21% (+3.6bps). The long end of the curve were closed mixed as the 30y MGS rallied -1.3bps to 4.89% while the 20y MGS weakened +13.3bps to 4.75%. Following its strong performance against EM Asia, the USD was traded mixed yesterday. The MYR continued to consolidate to 3.9177/USD (-0.16%). The MYR4.0bn new benchmark 10.5y GII 10/28 to be issued at the end of Apr will close later today and is expected to be the focus of investor attention.
¨ Trading in govvies remained unchanged at MYR2.9bn. Trading focused mainly on the short dated govvies with total trade volume of MYR1.48bn accounting for about 51% of trades. Trades worth MYR324m and MYR320m for the MGS 09/18 and GII 08/18, saw yields closed higher at 3.38% (+0.8bps) and 3.46% (+10.6bps). The 3y, 7y and 10y benchmarks of MGS 11/21, 03/25 and MGS 11/27 all saw yields pushed up +1.6bps, +3.2bps and +3.6bps respectively to close at 3.79%, 4.10% and 4.21% on trades worth MYR110m, MYR154m and MYR141m. Other notable transactions include MGS 08/22 and MGS 09/22 which saw MYR184m and MYR170m changed hands to end at 3.97% (+0.1bps) and 3.97% (+6.0bps) respectively.
¨ Corporate bonds/sukuks trading volume weakened to just under MYR183m. Leading the trades, SCC IMTN 12/21 on MYR40m trades which saw yield headed north +10.1bps to end at 4.71% while DANGA IMTN 09/33 saw MYR15m changed hand closed flat at 5.03% (+0.1bps). Meanwhile, Edra Energy’s IMTN 07/23, IMTN 01/28, IMTN 01/23 and IMTN 07/23 on combined trades of MYR30m saw yields picked up between +0.2bps and +5.3bps to close at 5.28%, 5.58%, 5.25% and 5.91% respectively. PIBB subdebt callable 06/19 on the other hand saw yield rose +8.2bps to close at 4.41% on trades of just under MYR15m.
¨ Over in ratings, RAM Ratings reaffirmed the AAA/Sta rating on Public Bank Berhad. The rating affirmation was driven by the bank’s sound asset quality, solid profit track record and sturdy loss-absorption buffers which is deemed sufficient to absorb the impact of MFRS 9 upon its implementation 1 Jan 18. The bank’s gross impaired loan (GIL) of 0.5% is the lowest in the domestic banking industry (industry average: 1.5%) while its GIL coverage ratio of 256.5% (including regulatory reserves) is the strongest in the industry, reflecting its sound asset quality profile. In terms of profitability, the bank registered a pre-tax profit of MYR7.1bn for 2017 with NIM of 2.26%, higher than 2.20% in the year before while its cost-to-income ratio of 32% remains the lowest among domestic peers. Public Bank’s capital position remained strong as reflected by CET1 and total capital ratios of 12.2% and 16.0% respectively as at end Dec 17. Concurrently, RAM Ratings also reaffirmed Public Islamic Bank Berhad AAA/Sta. The rating considers the strategic importance of Public Islamic as the Islamic banking arm of Public Bank. Similar to its parent, the Islamic bank has a sound asset quality profile underpinned by the group’s prudent lending approach as well as risk management. Its gross impaired financing (GIF) remained low at 0.6%, better than the banking industry average of 1.5%. RAM opined that the bank’s liquidity position as healthy with LCR 150% and ready funding support from the group if needed. Public Islamic’s capital position remains above the regulatory requirements as seen by CET1 at 11.9% and total CAR at 16.0%. RAM also views that the impact of MFRS 9 on the bank’s capital position as mutedNew benchmark 10.5y GII 10/28 to be issued end of Apr. EM Asia continued to see financial assets weaken and a weakening of local currencies against the USD. The MYR followed suit as it closed the day -0.17% weaker against the greenback at 3.9115/USD. The weakening of global government bonds led by the USTs saw the MYR govvie performance mixed. Though the 3y MGS yields rose +9.0bps to end at 3.77%, the 10y MGS remained unchanged to close at 4.18% (-0.3bps). The long end of the curve saw the 30y MGS weaken to 4.90% (+5.4bps). BNM has announced the planned tender for the new benchmark 10.5y GII 10/28 to be issued at the end of Apr. The auction will be for an expected size of USD4.0bn.
APAC USD Credit Market:
¨ USTs saw a respite following a weeklong weakening trend. After seeing yields push beyond 3.0%, the 10y USTs closed the day stronger at 2.98%. The UST yields curve rallied as the USTs pared losses. The 2y UST closed at 2.48% (-0.61bps) while 5y UST ended stronger -2.42bps at 2.81%. In the longer end, the 10y UST ended closed at 2.98% (-4.50bps) while the 30y USTs closed at 3.16% (-4.26bps). Part of the rally was attributed to the strong interest seen in the 7y UST tender and the result of the ECB meeting. The ECB, in its meeting maintained interest rates as was widely expected, while avoiding speculation on the EUR and on hinting on the tapering of its easing program. The ECB reiterated its guidance of monetary stimulus, while expressing its headwind concerns from softening Euro area data and threats of protectionism. The USD as seen by the DXY Index rallied a further +0.43% to 91.56. Over in economic data, the US trade deficit narrowed to -USD68bn Mar (-USD75.9bn Feb) while the US durable goods orders rose 2.6% in March. The weekly initial jobless claims fell to 209k, reaching new historic lows. Focus still remains on the upcoming USD 1Q GDP data and PCE to be announced later today.
¨ The iTraxx AxJ credit fell to 76.18bps. Leading the widening in spreads were Singapore Telecommunications Ltd and Bank of India after both recorded higher spreads level of +2.56bps and +1.57bps respectively. Moderating the rise in the CDS spreads were mainly financial institutions from Singapore and China where Oversea-Chinese Banking Corp’s subdebt, Export-Import Bank of China, Bank of China, China Development Bank and the subdebt of United Overseas Bank Ltd all saw spreads falling between -0.99bps and -2.31bps. KEB Hana Bank saw spread lowered -0.93bps while CNOOC Ltd by -0.91bps. Meanwhile, the sovereigns were relatively unchanged overnight with Thailand (+0.38bps) and Indonesia (+0.55bps).
¨ Over in ratings, Moody’s changed COSL Singapore Capital Ltd’s outlook to stable from negative; rating affirmed at Baa1. This follows the outlook revision of China Oilfield Services Limited (COSL), the guarantor of COSL Singapore’s note program. The outlook revision reflects COSL’s improved operations and financial position registering higher utilisation rates and day rates for its equipment in 2017. This resulted in higher revenue by 15.2% YoY to RMB17.4bn compared to a decline of 34.9% YoY in prior year. Its EBITDA margin also improved to 36.8% from 20.6% previously. COSL also pared down its borrowings to RMB32.4bn from RMB36.9bn resulting in debt/EBITDA falling to 5.1x from 11.9x the year before and Moody’s expects this to fall below 5.0x in 2018 and to 4.0x in 2019. Moody’s also expects the company to maintain its prudent management over capex spending, dividend distribution, debt levels and its improved operational profile. The company’s rating is constraint by its earnings volatility with a high exposure to the cyclical international drilling and oilfield service businesses on top of its geographic concentration and high business dependency on its parent.