Ø Strong foreign demand pushed MGS yields lower. The curve bull flattened with the

Credit Market Watch: Summary for week ending 12-Aug

·         MYR Credit:

Ø  Strong foreign demand pushed MGS yields lower. The curve bull flattened with the 10y15y down by 8-9bps WoW and the 5y point down by 4bps WoW. PDS saw higher volume at MYR3.2b. Yields in the quasi and AAA spaces tightened 1-6bps WoW.

Ø  2Q16 GDP: Growth moderated to 4.0% YoY (1Q16: 4.2%) which was in line with the forecast of our economist and consensus forecast. Growth was weighed down by net external demand which contracted 7% YoY. Offsetting this was a pick-up in domestic demand which expanded by 6.3% YoY vs 3.6% YoY in 1Q16. Our economics research team maintained full-year 2016 forecast at 4.1% and 2017 at 4.5%.

Ø  Premium Commerce Bhd: Outlook on its Class B Notes Series 2015-A (AA2), which are backed by Tan Chong Motor Holdings Bhd's auto loans, was changed to positive by RAM on the back of faster than expected redemption of Class A Notes (AAA/stable) and improvement in over-collateralisation ratio for Class B Notes to 15.1% from 5.6%.

Ø  KT Kira: Outlook on Kuveyt Turk (AA3) and KT Kira's MYR2b IMTN programme (AA3) was cut to negative by RAM following the agency's negative outlook on Turkey as a result of the recent attempted coup. Notwithstanding shareholder support from Kuwait Finance House KSCP, Kuveyt Turk's performance remains dependent on the Turkish economy.

Ø  Relative value: GovCo 26 and PASB 26 offers value last dealt at 4.22% and 4.21% respectively, 10-12bps above our quasi line. TNB Northern 29 last dealt at 4.52%, 7bps outside the fitted AAA line and 3bps more than where its 2030 paper last traded. Sepangar Bay 25 which last traded at 4.54%, 7bps outside the fitted AA1 line.

·          Asian Credit:

Ø  UST curve grinded lower and flatter along the 2y10y with the 10y UST yield down by 8bps WoW to 1.51%. This week, the US FOMC meeting minutes (for 26-27 July) will be released on 18 Aug (Asian time).

Ø  Asian USD credit market saw better bids with tighter spreads: JACI composite -11bps, JACI IG -11bps and JACI HY -13bps. On sovereigns, INDON curve outperformed shifting 10-15bps in the belly and long-end sectors, while PHILIP and MALAYS overall strengthened a tad in prices.

Ø  Korea's rating was raised to AA from AA- by S&P, citing strong record of economic growth with above-peers per capital GDP growth faster than high-come country range, strong fiscal and monetary flexibility as well as continued improvement in external positions.

Ø  Rating update: 1) MISC Bhd was upgraded by S&P to BBB+ from BBB, citing better-than-expected 1H16 results despite difficult market condition. MISC’s cashflow is expected to remain solid, capex to be moderate and debt/EBITDA ratio to stay below 2.5x. The company’s standalone rating is upgraded to BB+ from BB, meaning the same 3 notches uplift due to parental support from Petronas. 2) IOI Corp is no longer on review for downgrade by Moody’s after the RSPO lifted its suspension on  certifying IOI palm oil, but the outlook is kept at negative considering the implementation risk for action plan.

·         CDS: EM Asia 5y CDS spreads moved tighter, led by Malaysia -11bps, followed by Indonesia -10bps, Philippines -5bps and Thailand -4bps while China and Korea -3bps each.