Investors Eye Key BI and CBRT Policy Meetings; FGB on Positive Outlook by Fitch

18 July 2016

Global Sukuk Markets Weekly

Investors Eye Key BI and CBRT Policy Meetings; FGB on Positive Outlook by Fitch

Highlights & Performance

¨   Bloomberg Malaysia Sukuk Ex-MYR Total Return (BMSXMTR) and Dow Jones Sukuk Total Return (DJSUKTXR) closed slightly weaker at 104.7 (-0.24%) and 162.2 (-0.16%) respectively, with yields rising 5.5bps to 2.419%. Losses in longer-term sovereign and related entities papers — TURKSK 6/21 (+13bps to 3.65%), INDOIS 5/25-3/26 (+13bps to 3.62-3.73%), SECO 4/43 (+13bps to 5.05%) and MALAYS 4/25-4/46 (+12-13bps to 2.78-3.60%) led the indices lower. But perpetual banking papers in the Gulf mostly rallied after the positive earnings results by Abu Dhabi Islamic Bank (ADIB) and Banque Saudi Fransi (BSF) bolstered sentiment.

¨   Bank Negara Malaysia (BNM) surprised the market to cut its OPR for the first time since Feb 2009 by 25bps to 3%, lead to declining CDS premium to 130.0bps (-19.4bps) and USD/MYR to 3.9475 (-2.12%). Elsewhere, Indonesia’s CDS fell to a one-year low of 169.8bps (-20.3bps) as markets responded positively to the improvement in its trade balance, consumer confidence index and foreign reserves. Bank Indonesia (BI) is expected to leave rates unchanged in the policy meeting on 21 July (Thursday) to assess the transmission of the 4^th cut in its last meeting. Meanwhile, Turkey’s current account deficit narrowed by USD0.1bn to USD2.86bn in May from USD2.97bn in April; while government budget balance fell to -USD7.9bn in June from +USD3.7bn in May. Its CDS traded lower at 226.0bps range (-2.0bps) as investors eye possible Central Bank of Turkey (CBRT) 50bps cuts in overnight lending rate to 8.50% on Jul 19 (Tuesday). The Turkish CDS is likely to be pressured by a failed coup attempt in the country, but we opine this would be short-lived as the situation appears to be under control.

¨   Turning to the ratings front, Fitch upgraded First Gulf Bank’s (FGB) outlook to positive from stable on merger announcement with National Bank of Abu Dhabi, putting it in line with Moody’s rating action on July 4. Spread for FGBUH 1/17 traded 2bps wider to 1.24%.