Credit Market Watch: Summary for week ending 7-Aug

Credit Market Watch: Summary for week ending 7-Aug

·         MYR Credit:

Ø  Activity slowed in the PDS market amid selloff in MGS as MYR weakened to around 3.92. 5y and 10y MGS was higher by 22bps and 9bps WoW. Quasi and AAA yields somewhat tracked the govvies and was up 1-4bps WoW, but short-dated spreads tightened due to the bear flattening govvy curve.

Ø  Sarawak Energy sold MYR700m 10y at 4.75% and MYR800m 20y at 5.28%. This week GENM Capital may sell MYR2.0b or larger issuance of 5y/7y/10y notes.

Ø  Relative value: Market to remain volatile due to uncertainties over the weak MYR. FRL'17 offers value, last traded 11bps above our fitted line, but take note of lower equity and higher net gearing when amendments to FRS 16/FRS 41 takes effect on 1 Jan 2016 for Singapore listed companies. Our equity analyst estimates that GGR would see the largest write-down in shareholders' fund by -63%, followed by FR -27%, BAL -21%.

·         Asian USD Credit:

Ø  Brent crude price hasn't seemed to reach the bottom yet, declining further to USD48.4b/bbl as we write from USD52.2/bbl on 31st July.

Ø  UST curve bear-flattened WoW with 2y and 5y yields rising 4-6bps as last Friday's reasonably strong US jobs data strengthens the case for FFR hike in September.

Ø  Asian credit spreads were overall wider for both IG and HY. Sovereign performance was mixed, with MALAYS and PHILIP showing some resilience but the INDON curve rose by 2-3bps in yield. OGIMK'23 was a tab weaker.

Ø  Quasi-sovereigns in India and Korea saw good demand in short to belly sector, with Indian-quasi likely seen as alternative to diversify from China risks.

Ø  Rating changes: Gajah Tunggal's outlook was revised to negative by S&P, while Moody's lowered STATS ChipPAC rating to B1 from Ba3.

·         CDS: Indonesia, Malaysia and Thailand were the underperformers, widening 5bps, 3bps and 5bps respectively. Malaysia, despite being a higher-rated country, still sees its 5y CDS at 51bps and 39bps wider than Philippines and Thailand.