Volatility may creep back into Asian Bond Markets from strong US job numbers. IG Credit spreads and

8 August 2016

Credit Markets Weekly

O&G Companies Led Rout in HY space

                                                                      

APAC USD CREDIT MARKETS

¨      Volatility may creep back into Asian Bond Markets from strong US job numbers. IG Credit spreads and average non-IG bond yields reverse some gains as both widened 2-4bps WoW 201.5bps and 6.36% respectively, though the iTraxx AxJ tightened 1.2bps to 118.5bps. USTs plumetted 7-13bps WoW, with the 10y at 1.58% on the back of the stellar July NFP numbers at 255k (consensus: 180k) on Friday, while labour force participation rate and average hourly wages MoM were also higher at 62.8 and 0.3% respectively.

¨      Moving to ratings, there were 6 rating downgrades for the week. PT Gajah Tunggal was cut to B-/Negative Watch from B/Neg by S&P driven by rising refinancing risk for its USD500m notes due in Feb-18 amid high capex spending, investments in working capital and the lack of cash build-up. Similarly, PT MNC Investama was downgraded to B-/Neg from B/Neg by S&P premised on its unfavorable debt maturity profile and given the delays in its refinancing efforts for its USD365m 2018 notes amid still-high capex.

¨      Quiet primary markets as deals slowed to USD2.2bn from USD3.9bn in the earlier week, despite garnering strong interest from investors especially seen with the issuance from Road King Infrastructure (B1/BB-/NR). 78% of the deals priced were from China and Hong Kong, and were mostly from the property (43%) and banks/FI (35%) sector.

SGD CREDIT MARKETS

¨      Primaries pick-up from mega HDB and inaugural Frasers Commercial print. The primary issuance space picked-up after the lackluster month of July, with a mega issuance from the Housing Development Board (Aaa/-/-) with a SGD700m 7y at 1.91%. YTD issuances are around SGD15.4bn, or 2.9% higher if compared to a similar period last year. In addition, Frasers Commercial Trust (Baa2/-/-) printed an inaugural SGD100m 5y at 2.835%, around 11.5bps inside initial guidance, with banks and funds comprising over 90% of total demand. Pressure continued to mount on HY O&G names such as VALZSP, EZRASP and NCLSP while interest was observed in property names like OHLSP, CAPLSP and ASPSP. Moody’s revised Soilbuild Business Space REIT’s outlook to Baa3/Neg from Baa3/Sta due to lack of clarity on the future leasing capabilities of its Loyang property (which caters to the O&G industry) and partially debt-funded acquisition of its Bukit Batok property. Meanwhile, Genting Singapore’s (Baa1/NR/A-) net profit for 1H16 fell by 43% YoY to SGD59m as it has been hit by declines in the premium gaming market.

¨      Marginal rise in the SOR benchmark. There was a rise in the short-to-mid SOR curve by 1.5-1.8bps, with the 2y and 5y closing at 1.47% and 1.73% respectively. Looking ahead, investors will be eyeing the Singapore final 2Q16 GDP numbers (11-Aug) and June Retail Sales (15-Aug).

MYR CREDIT MARKETS

¨      Govvies closed weaker as investors were cautious before NFP number. MGS rose 3-10bps with the 10y settling at 3.60% while 7y inched 10bps higher to 3.48% after the lackluster auction which garner weak BTC of 1.58x. MYR strengthened 1.2% to 4.02/USD last week as oil prices recovered and wider Malaysia’s trade surplus of MYR5.52bn in Jun-16 (May: MYR3.28bn) as exports rebounded 3.4% YoY after falling by -0.9% in the previous month. Nevertheless, the MYR was trading weaker at 4.03-4.06/USD this morning after the better-than-expected US’ non-farm payroll number last Friday. Malaysia’s foreign reserves remained stable at USD97.3bn as at end-July. Investors to focus on the 2Q GDP print this Friday as any negative surprises could lead to more easing this year.

¨      MYR680m issued in the primary market, mainly 1y issuance from Cagamas (MYR410m) and Maybank Senior (MYR200m). The secondary market registered moderate flows of MYR2.5bn during the week. Most active was Cagamas (11% of total trades) as tranche 10/28 fell 14.5bps to 4.30%. Elsewhere, KLK ’25-’26 declined 2bps to 4.459-4.498% amid the rising CPO prices.