Credit Market Watch: Summary for week ending 5-Aug

Credit Market Watch: Summary for week ending 5-Aug

·         MYR Credit:

Ø  MGS weakened as soft oil prices pushed MYR weaker against the USD with yields along the 5y15y higher by 4-5bps WoW. PDS yields widened 1-6bps WoW, except for quasi yields which stayed flat WoW. Trading remained light with traded volume totalling MYR2.9b last week.

Ø  External trade: Malaysia's trade surplus narrowed further in 2Q16 to MYR17.8b from MYR23.9b in 1Q16, dragged down by net external demand. Total trade surplus for 1H16 was little changed from a year before at MYR41.8b. Outlook for trade in 2H16 to remain modest as manufacturers are losing competitive edge from a weak currency and global economic growth outlook has been reduced after the Brexit.

Ø  Relative value: Prasarana 28 seem to have value as it last traded 4.35%, 10bps outside the fitted quasi line and 5bps more than where Cagamas 28 last dealt.

·          Asian Credit:

Ø  UST curve bear-steepened along the 2y10y WoW with the 10y UST yield up 14bps after a larger-than-expected US nonfarm payroll gain of 255k in July (consensus: 180k). This follows a 287k increase in June which is now revised higher to 292k. Wage growth was resilient at 2.6% YoY and labor force participation rate rose to 62.8% (June: 62.7%).

Ø  In Asian USD credit, spreads widened moderately with JACI composite +4bps, JACI IG +4bps and JACI HY +6bps for the week as of 4th Aug. On sovereigns, the INDON, PHILIP and MALAYS curves in general shifted 3-6bps lower over the week.

Ø  Singapore banks: Swiber's default with DBS Bank increasing the provision for loan loss to 50% of its exposure compared with Singapore banks' current loss experience of around 20% on their oil & gas loans, may mean the risk of under-provisioning for the industry, according to Moody's. The agency expects pressure on the financials of oil & gas services sector to increase in the second half of the year despite recent stabilisation in energy prices.

Ø  Rating update: Evergrande announced that it had acquired a 4.68% stake in Vanke, adding twist to the ongoing tussle for control over Vanke. Moody's commented that the move is credit negative to Evergrande due to series of debt-funded expansions. Leverage has been on the rise, although liquidity profile remains manageable.

·         CDS: EM Asia 5y CDS spreads tightened 2-5bps WoW, with Indonesia -5bps, China -4bps, Malaysia and Philippines -3bps each while Thailand -2bps.