Dovish FOMC Minutes to Lend Further Support for Credits

11 April 2016

Credit Markets Weekly

Dovish FOMC Minutes to Lend Further Support for Credits

                                                                       

APAC USD CREDIT MARKETS

¨      Credit spreads widened as Asian CDS and IG spreads inched up by 2bps to 146.5bps and 221.2bps, although average yields of junk bonds trended 6bps lower to 7.46%. Meanwhile, Treasuries gained as benchmark yields dipped 2-7bps with 5y and 10y at 1.15% and 1.72% respectively as safe haven assets continue to be preferred amid selloff in global equities markets and dovish FOMC minutes.  

¨      China Oilfield Services was downgraded to BBB+ from A- with a stable outlook by S&P, on the premise of expected weaker financial profile in the next 1-2 years amid the sluggish offshore oilfield services industry. Meanwhile, the progress seen in refinancing efforts resulted in S&P removing Vedanta Resources from negative watch while affirming its ratings at B/Sta. Elsewhere, outlooks of Bank of Commounications (BOCOM) and BOCOM Leasing were revised to negative in tandem with China sovereign’s.

¨      Moody’s slashed SOHO China and Reliance Communication to Ba3/Neg, as the departmental store operator’s credit profile is expected to weaken given a shift from a build-to-sell model to a build-and-hold strategy, which increases execution risks while the latter’s persistent delay in deleveraging resulted in its downgrade.

¨      Primaries picked up by 72% WoW to c.USD2.7bn with YTD issuances at c.USD46.4bn. Commodities-linked players amounted to 64% of deals priced last week led by Olam International’s (NR) USD300m 5y at 4.50% vs. IPT of 4.65% area, Korea National Oil’s (Aa2/AA-/AA-) 2-tranche USD1.0bn 5y and 10y at T+95bps vs. IPT+115bps area and 120bps area respectively.

SGD CREDIT MARKETS

¨      Primary prints slow; SG quarterly residential prices decline further. Issuances were weak, with only SGD90m printed this week led by Croesus Retail Trust with a SGD60m 4y at 5%. YTD issuances have hit SGD5.6bn or 3% higher than a similar period last year. Secondary interest remained in property/REIT names after last week’s primary deluge from the real estate space, with names like CITSP, AREIT, ARTSP closing tighter while commodity names like KEPSP, TRAFIG and OLAMSP appeared wider as Brent oil prices lingered mostly below the USD40/bbl threshold, though it surged on Friday closing at USD42/bbl. Halycon Agri (NR) announced that it was seeking a bond consent solicitation exercise for its sole outstanding SGD125m HACLSP 7/19 after Sinochem announced that it would be acquiring a majority stake in the company.  Meanwhile, Singaporean private residential prices fell for the 10th consecutive quarter, with the 1Q16 falling by 0.7% QoQ (4Q15: -0.5%), or 9.1% cumulatively since peaks in 3Q13. The mortgage tightening policies are not expected to be eased soon as the Government emphasized at the recent Budget 2016 speech that it was too premature to relax measures given current price levels.

¨      SOR stabilized after recent bout of volatility. Unlike the previous few weeks, SOR was quite stable last week, with the 2y and 5y seeing a less than a 1bp decline to close at 1.53% and 1.89% respectively. Looking ahead, investors will be eyeing SG 1Q16 final GDP numbers (14-Apr), Feb Retail Sales (15-Apr) and Mar NODX (18-Apr).

MYR CREDIT MARKETS

¨      MGS curve inched higher as MYR weakened. Govvies retreated from the rally in March with the 10y settling 5bps WoW higher at 3.81%; along with weakening of 0.2% WoW in the USDMYR to 3.9018. With lack of investment catalyst in the near term, foreign players may opt to take profit after the huge inflows of MYR10.1bn into the MGS and GII space in March, which increased the foreign holdings to 48.7% and 6.9%, from 47.5% and 5.4% in in the previous month. Investors’ focus would likely switch to the 20y MGS 5/35 Reopening auction this week, with consensus size of MYR2-2.5bn. Corporate flows remained active above MYR4bn where quasi-govenrment such as Khazanah, PASB and Cagamas ended firmer. Primary market was led by AAA-issuances – Putrajaya Holdings (MYR535m), Silver Sparrow (MYR229m) and Cagamas (MYR200m).