MGS yield curve moved higher alongside weaker USDMYR WoW. The 10y MGS was up 2bps WoW to 3.58%. Corporate bond space was moderately active with MYR2.5b trading volume and saw sustained interest in long dated bonds.

Credit Market Watch: Summary for week ending 2-Sep

·         MYR Credit:

Ø  MGS yield curve moved higher alongside weaker USDMYR WoW. The 10y MGS was up 2bps WoW to 3.58%. Corporate bond space was moderately active with MYR2.5b trading volume and saw sustained interest in long dated bonds.

Ø  Banking stats: Loan growth decelerated to 5.1% YoY in July, achieving just 2.6% on an annualized basis. Loan approvals contracted 19% YoY in July for the 11th consecutive month on a 3MMA basis. Our banking analyst cut loan growth forecast for 2016 to 5.3% from 6% and reduced 2017’s to 5.3% from 5.6%. In 2H16, NIM is expected to narrow and credit costs to continue trending higher, though possibly offsetting these are further cost tightening, provision write-backs and better results from overseas. Loan/deposit ratio was stable at 88.8% end-Jul and loan/fund ratio at 83.3% as deposits growth rose 1% YoY in July reversing declines in the past four preceding months.

Ø  MPC meeting this week: We rule out a back-to-back OPR cut in September, although a slightly dovish tone may persist with reference to downside risks to growth and well anchored inflation. Leading economic indicators showed teething signs of stabilisation in growth slowdown, we don’t anticipate the BNM to rush a second OPR cut.

Ø  Relative value: PASB 21 appear to have value as it was last dealt 3.98%, which is 15bps above our fitted quasi line and 20bps more than Danainfra 22.

·          Asian Credit:

Ø  UST curve shifted lower along the 2y10y as tepid jobs data with both payrolls (151k actual vs 180k consensus) and wage growth (2.4% YoY actual vs 2.5% YoY consensus) below market consensus.

Ø  In Asian USD credit, most players were on the sidelines ahead of the NFP. Spreads remained stable with JACI composite +1bps, JACI IG -1bps and JACI HY -2bps WoW. Sovereigns generally underperformed corps with wider spreads. INDON curve was 8-12bps higher, MALAYS curve rose 2-3bps while PHILIP curve also traded about 4-8bps weaker.

Ø  Rating update: 1) Ascott Residence Trust’s outlook was revised to Baa3/negative by Moody’s, citing continued deterioration of gearing profile to below the parameters of Baa3 rating. Its adjusted debt/total deposited asset weakened to 46%, adjusted EBITDA/interest expense declined to 3.5x and adjusted net debt/EBITDA was elevated at around 3.5x. Further deterioration in these metrics e.g. debt/EBITDA exceeding 9.0x and EBITDA/interest cover below 3.0x will result in rating downgrade. 2) Both China Jinmao and Sunac China’s rating outlook were revised to negative from stable due to aggressive land acquisitions and the agency’s expectation that margins may decline due to higher land costs and leverage profile to stay elevated.

·         CDS: EM Asia 5y CDS performance was mixed. Outperformers were China -3bps, Thailand -2bps and Korea -1bps, Indonesia underperformed +6bps while Malaysia was flat WoW.