Dovish Fed Minutes; Malakoff and KLK Recorded Strong Earnings

18 August 2016

Credit Markets Update

Dovish Fed Minutes; Malakoff and KLK Recorded Strong Earnings

¨      APAC USD Credit Market: Mixed Credit Markets Prior to Fed Minutes. IG credit spreads were firm at 184.7bps (-2.9bps), whereas the average HY bond yields climbed 2bps to 6.28%, while the iTraxx AxJ was marginally tighter at 114.3bps. Elsewhere, the slightly dovish July FOMC meeting minutes drove benchmark USTs lower by 2-4bps with the 2y at 0.73% (-2bps). The 10y also declined 2bps to 1.55%. Over to ratings, Moody’s slashed West China Cements’ rating to B1/Neg from Ba3 on the back of the weak and challenging Chinese cement industry which has deteriorated its credit profile as debt/EBITDA is expected to rise to 4.3-4.5x in the 12-18 months from 4.1x in Jun-16.

¨      SGD Credit Market: Interest into HY O&G found wanting despite stronger oil prices. There was a bear steepening in the short-to-mid swap curve, with the 5y rising by 6bps to 1.67% while the 2y rose 3.8bps to 1.41% ahead of the release of the July FOMC minutes last night. Brent oil prices have lingered stronger, closing at USD49.9/bbl yesterday, though interest into HY O&G names is still scant as recent default jitters have yet to fully dissipate. Interest was observed in yielder names like OHLSP, PREHSP and KOHSP as well as S-REITs like MCTSP and FCTSP.

¨      MYR Credit Market: Corporate market stayed active with MYR695m exchanging hands. Financial and infrastructure names were highly traded – notably, CIMB sub-debt 11/22c17 declined c.1bp to 3.99% on MYR140m trades; while SBPC 7/20 moved on the same quantum to 4.104%. The govvies closed generally wider with the 7y MGS rising 3bps to 3.42% amid weakening MYR following hawkish remarks from Fed’s William Dudley. However, the local currency recover to 3.9995/USD this morning as the overnight July FOMC minutes highlight a divided Fed. Meanwhile, Malakoff Corp posted a 11% increase of its 1H16 net profit to MYR242.6m with lower losses from its associates. Kuala Lumpur Kepong’s cumulative 3Q16 net profit spiked up by 81% to MYR1.28bn aided by a surplus of MYR485.6m from the sale of plantation land to an associate.