Credit Market Watch: Summary for week ending 1-Apr

Credit Market Watch: Summary for week ending 1-Apr

·         MYR Credit:

Ø  MGS turned bullish mid-week on US Fed dovishness, along with the strengthening MYR which trades at ~3.86/87 against the USD as we write. MGS rallied 5-7bps lower in yields WoW. PDS yields also largely lowered, down by 1-4bps WoW. The bullishness coupled with month-end rebalancing, it was among the most active weeks for PDS market with MYR4.1b traded volume.

Ø  In 1Q16, PDS reported gross issuance totalling MYR18.2b in 1Q16 (1Q15: MYR11b) making up about 23%-26% of our full-year target of MYR70-80b. By ratings, quasi-govvy and AAA-rated comprised 65% of total issuance, while AA segment took up 21%. By sector, the mix was more widespread with transportation, diversified holdings, financial services and infrastructure accounting for 25%, 24%, 20% and 15% respectively.

Ø  Relative value: Aquasar 23 seem to offer value, last trading 14bps above our fitted line.

·         Asian USD Credit:

Ø  UST curve rallied 13-16bps along the 2y10y WoW despite the US nonfarm payroll printed a better-than-expected 215,000 MoM change against 205,000 consensus. Unemployment ticked up to 5.0% from 4.9% but was due to higher participation rate of 63.0% (Prior: 62.9%), while wage growth was a modest 2.3% YoY. Asian credit spreads was overall flattish to slightly stronger, with JACI composite -4bps, JACI IG flat and JACI HY -4bps WoW.

Ø  China: Rating outlook was revised to negative from stable by S&P while affirming its AA- rating, following Moody's move in early March. S&P cites increasing economic and financial risks to the Chinese government's creditworthiness, and expects the pace of China's economic rebalancing is likely to be slower than previously expected. In response, the MoF of China countered that the rating agencies have overestimated the difficulties that the country faces, and underestimated its ability to proceed with reforms and manage risks. Despite the negative outlook, China's 5y CDS has remained resilient ending the week 8bps narrower.

Ø  Regional sovereigns generally tracked the UST move. INDONs were stronger by 7-15bps, KOREA and MALAYS approx. 10-15bps tighter while PHILIP about 5-10bps better on WoW basis.

Ø  Other rating update: Moody's revised Singapore banks outlook to negative with DBS, OCBC and UOB all impacted due to the agency's expectation of a more challenging operating environment for banks in Singapore and asset quality and profit will be pressurised. Meanwhile, Fitch had finally caught up with revising Sime Darby's rating to BBB+ from A with a negative outlook now that the rating of all three agencies on SIME is aligned.

·         CDS: EM Asia 5y CDS spreads were broadly tighter, led by Thailand -9bps, China -8bps, Indonesia -7bps and Malaysia -6bps WoW.