NFP Looms; Ascott REIT Cut to Negative by Moody’s

2 September 2016

Credit Markets Update

NFP Looms; Ascott REIT Cut to Negative by Moody’s

¨      APAC USD Credit Market: IG credit spreads and non-IG bond yields traded wider by 1-4bps to 182.9bps and 6.34% respectively. The iTraxx AxJ IG was similarly marginally higher at 113.2bps, whereas USD primary markets took a breather ahead of the release of the key US august jobs report. Elsewhere, USTs yields retreated with the 2y at 0.78% (-2bps) and 10y at 1.57% (-1bp) following the August ISM manufacturing print which contracted to 49.4 (consensus: 52; prior: 52.6), while oil prices continue to tumble (Brent: -3.4% to USD45.5/bbl). On ratings, Ascott REIT’s outlook was slashed to negative from stable; ratings affirmed at Baa3 premised on weaker leverage profile following its debt funded acquisitions spree with debt/total deposited assets rising to 46% (June-15: 44%), net debt/EBITDA at 8.5x and interest coverage declining to 3.5x (June-15: 4.1x) as at end-June 16.

¨      SGD Credit Market: MAS adjust policy to ease home refinancing. There was a mild rise in the short-to-mid SOR curve, with the 5y rising by 1.1bps to 1.74% while the 2y inched up 0.7bps to 1.48%. Interest was observed in property names like OHLSP and GUOLSP as well as some pickings in EZISP papers. MAS announced changes to its Total Debt Servicing ratio loan framework, where home loan borrowers who refinance are exempted from the 60% threshold. MAS emphasized that this was not an easing of mortgage policy, with the 60% threshold still applicable to new home loans. Looking ahead, investors will be eyeing the Singapore Aug PMI which will be released tonight (consensus: 49.4), which has shown 13 consecutive months of contractionary expectations.

¨      MYR Credit Market: Govvies yield declined despite weaker MYR. Benchmark 3y-10y MGS fell 1-3bps to 2.85%-3.58% on quit trading day while MYR weakened 0.7% to 4.077/USD. Corporate flows improved 60% to MYR590m. PLUS was the most active with MYR205m exchanging hands where tranche ’29-’31 setteld flat at 4.33-4.448%. Elsewhere, PASB 6/21 rose 23bps to 3.978% on MYR50m trades.