FW: RHB FIC Credit Market Update - 4/4/14

4 April 2014

Credit Market Update

MYR Investors Focus on Primary Market; APAC Spreads Tighten Amid Weak Primary Flows and Climbing UST Rates

MALAYSIA

¨      DanaInfra and Mumtalakat led the quiet MYR market. Secondary MYR flows maintained the sub-par performance on Thursday, as investors are focusing on primary market for more meaningful position. Volume fell to MYR253m (previous: MYR326m) to the ‘new normal’ (5d average volume: c.MYR258m). Meanwhile, the MGS market similarly was quieter with MYR918m traded (previous: MYR1.2bn) with attention could be placed on the new SPK MYR1.6bn 7y auction. In the corporate bond market, trades were seen across broad durations and segments, as opposed to the previous day where interests were primarily vested on double-A names and government-related entities. Top traded DanaInfra 10/33 gained 1bp at 5.09% since its last trade on 17-Mar, while the yield on Mumtalakat 10/17 inched 1bp higher to 5.32% since 19-Mar.

REGIONAL

¨      HY spreads continue to outperform; protection costs up. The JACI composite spread narrowed 2.4bps yesterday to 252.1bps supported by tightening in IG and HY spreads of 2.1bps and 4.0bps respectively. On the IG front, China/HK IG spreads ended a couple of bps wider, with HK yields outperforming China names on average across all industries amid profit taking in property and SOE names; we also saw both new SINOPEC 19 and 24 trade flat in the same day.  In SEA, the new SCBTB performed well, trading tight at c.15bps before fast money accounts began taking profits.On the HY front, the property sector continued to perform generally well, with yields tightening 2-3bps on average, led by names including Fantasia, CIFI and Yuzhuo. Elsewhere, we saw CITPAC 18-23 posting wider yields (+11.6-38.3bps) while energy (incl. coal and oil) names (eg., YANCOAL, CITIC and ANTOIL)  saw mixed performance. In India, on the banking front, we saw ICICIs outperform IDBIs. In the SGD space, we saw demand for short-dated papers like MUSTAFA, SWIBSP and BIGSP 17s, despite SWIBER's MYR100m 2.5 yrs (5.55%) being added to the primary space. Meanwhile, the iTraxx AxJ S21 closed 3.8bps wider at 125.5bps. In the US, UTS rates changed little overnight ahead of the NFP report release later today. In addition, ISM non-manufacturing index rose to 53.1 in March (+1.5pts m-o-m), although below expectations of 53.5, on the back of better new orders and employment. On the other hand, initial jobless claims, rose by 15K to 326K while the trade deficit widened to USD42.3bn in Feb from USD39.1bn in Jan.

¨      State Bank of India (Baa3/Sta; BBB-/Neg; BBB-/Sta) has mandated banks for investor meeting in connection with a USD Senior notes offering (Reg S/144a). Elsewhere, China CITIC Bank (Baa2/-/BBB; all stable) is also arranging a series of meetings on its first USD undated non-cumulative subordinated additional Tier 1 capital securities offering (Reg S).

TRADE IDEA                                                          

¨      MYR: Switch from Sports Toto (STMSB) 6/17 (price 104.9; yield: 4.37%; rated AA-) to Media Chinese (MCIL) 2/17 (price: 100.5; yield: 4.38%; rated AA1). In the double-A space, we spot value in MCIL 2/17 (MGS+100bps) with a switch from STMSB 6/17 (MGS+99bps) providing potential cash gain of 4.4pts or c.4%, in addition to reducing risk across the rating band by moving 2 notches up. Credit-wise, we opine that MCIL should remain strong in the near to medium-term despite being in the newspaper-publishing industry, given that it dominates the Malaysian Chinese language newspaper segment alongside its high share of advertising expenditure of c.70% since 2009. On mitigation, a portion of younger generation may opt for newer media although we believe the impact may not be significant in the near- to medium-term.

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