RHB FIC Credit Market Weekly - 8/5/15

8 May 2015

Credit Market Weekly

Yields Widen on Mixed US Signals  

                                                                       

REGIONAL

¨      Focus on fresh prints in profit-taking week; sentiment wavers on mixed Fed signals and unimpressive economic data. UST rates rose 4-7bps this week on mixed signals from the Fed regarding rates’ guidance and Yellen commenting on long rates being overpriced. Credit protection costs vis-à-vis the iTraxx AxJ also steadily crept up 3.8bps WoW, reflecting a dip in sentiment possibly over concerns on US rates and China’s lackluster PMI print of 51.3 (prior: 51.8) which did not help to elevate confidence levels. Brent crude prices were well-supported for the most part, inching down 1.4% to USD65.54/bbl near the end of this week. Despite this, O&G IG credit yields added 13.4bps in general. Furthermore, real estate IG names widened 12bps broadly, with HY credits adding 16bps. In the banking space, IG yields fared better, adding a lower 5-8bps on average. Meanwhile, the most recent issues were firmly traded, including CCB USD2.0bn 10NC5 B3T2s closing 5bps inside reoffer of T+242.5bps, while Kunlun Energy’s 5y and 10y notes held stable at its T+140bps reoffer (IPT: T+165bps) and T+165bps (IPT: T+190bps) respectively. Up ahead, investors have nonfarm payrolls data to assess later tonight which is generally expected to improve.

¨      USD4.25bn in new sales this week; sustained pipeline from China. In the primaries, the top issues this week were led by China Construction Bank (CCB, A1/A/A) raising USD2bn 10NC5 B3T2 notes priced at T+242.5bps (IPT: T+255bps), oversubscribed 3.5x and having the lowest benchmark primary level recorded across comparable China T2 papers; followed by Kunlun Energy (A1/A+/A) debuting USD500m 5y and USD500m 10y notes priced at T+140bps (IPT: T+165bps) and T+165bps (IPT: T+190bps) respectively, each oversubscribed 5.8-6.0x; China Merchants Bank Co. (New York Branch) (Baa1/BBB+/BBB) with USD500m 3y senior notes at T+147.5bps (IPT: T+170bps); Shinsegae Inc.’s USD300m 30y PNC5 notes, guaranteed by Kookmin Bank (A1/A/A), sold at T+125bps (IPT: T+150bps); Hsin Chong Construction Group’s (NR) USD250m 3y notes at 8.75% (IPT: 9.25%) and China Energy Reserve’s (NR) USD200m 3y tap priced at 5.25% (IPT: 5.375%), oversubscribed 4.25x. New to the pipeline this week, China General Nuclear Power (A3/A-/A+) began roadshows from 7-May for a potential corp-guaranteed USD deal; global ICT giant, Huawei, commenced meetings on 6-May for a USD Reg S issuance, to be guaranteed by Huawei Investment & Holding Co. (NR); while China Metallurgical Group Corp (Baa3/BBB-/NR) will hold bond meetings from 11-May.

¨      SGD: O&G pickings on better sentiment. With YTD 2015 issuances around 20% lower (~SGD7.1bn) than a similar period in 2014, Issuances picked-up this week led by prints by BOC Aviation (BBB+/A-) with a SGD145m 10y at 3.93% and Medco Energi (NR), an Indonesian onshore O&G production company with a SGD100m 3y at 5.9%. Year-to-date, we have not seen any offshore OSV players coming to the bond markets so far, though onshore players such as Medco Energi and Indus Gas (NR with a 3y at 8%) have tapped the market with yielder papers. Investors continue to be comfortable with these onshore brownfield players due to general lower breakeven Brent oil costs of around USD20-40/bbl, much lower than current Brent oil prices of around USD65-67/bbl. We also observed better secondary flows in the O&G sector (SWIBSP, KRISSP, NCLSP) on better sentiment as Swiber (NR) announced that it was buying back SGD0.75m of its SGD80m Perpetual. The property space also saw active flows on SG names like HPLSP, GUOLSP and OUESP. In the pipeline, SoilBuild Business Space REIT (BBB-/-/-) and Starhill Global REIT (BBB+/-/-) is currently meeting investors for a planned SGD issuance.

¨      SORs widen considerably. This week saw the SOR curve widen considerably, with the 3y and 5y broadening by +23bps (to 1.79%) and +27bps (to 2.21%) as the 3y/5y spread broadened by 4bps to 42bps. USTs of the same duration rose by 11-14bps. Upcoming key data releases include the SG Mar Retail sales (15-Mar).

MALAYSIA

¨      Long dated bonds dominated trading activity. MYR bond index fell 0.07% w-o-w as govvies yields increased post Yellen’s hawkish tone on Wednesday. Trading activity in the sovereign space were thin at MYR8.2bn amid the MPC meeting which saw the central bank maintained the OPR at 3.25%. MGS yields climbed by 2bps-6bps w-o-w with heavy flows in the 5y-MGS while the local currency weakened towards 3.5995/USD. Demand for the corporate bonds remain supported with daily average of MYR790m, above the YTD average of MYR500m/day. We saw tightening in some banking and long-dated tollroad bonds by couple of bps such as Maybank IT1 9/68c18, PBFIN NIT1 6/59c19 and Bright Focus 1/31. Overall, more than half of the activity were focused in long-dated bonds.