Government bond market softened with yields higher by 3-6bps WoW amid a muted, short week. Quasi bonds moved in tandem widening 2-4bps in yields WoW, AAA was little changed, while AA bonds outperformed.

Credit Market Watch: Summary for week ending 7-Oct

·         MYR Credit:

Ø  Government bond market softened with yields higher by 3-6bps WoW amid a muted, short week. Quasi bonds moved in tandem widening 2-4bps in yields WoW, AAA was little changed, while AA bonds outperformed.

Ø  Genting Capital: RAM reaffirmed Genting Capital’s AAA/stable rating along with Genting Bhd, which guarantees the former unconditionally and irrevocably, as expected. The rating action reflects Genting’s strong market position and sturdy balance sheet, though the agency expects the company’s debt level to increase over the next 3 years.

Ø  Kesas: Rating reaffirmed at AA2/stable by RAM, citing satisfactory traffic growth underpinning the company’s strong debt service coverage. RAM projects a minimum DSCR ratio of 2.25x for the sukuk’s remaining tenure assuming an average cash flow of MYR206m before debt obligations.

Ø  Relative value: Both UMW Holdings and WCT last traded/crossed with yields 1 to 2 notches wider than their existing ratings, a reflection of market cautiousness about potential downgrade risks on the names. UMW’s rating was revised lower to AA2 with a stable outlook by RAM back in Jul 2016, while WCT is currently rated AA- with a negative outlook by MARC and the outcome of its rating review should be due this month.

·         Asian Credit:

Ø  UST curve bear-steepened with the 10y UST yield up 12bps WoW. This mirrored the weakness in German Bund on tapering concern by the ECB when the existing QE programme, if not extended, comes to an end in March 2017. The curve steepening pressure was capped and yields retraced a tad lower after a miss in September’s nonfarm payroll: 156K actual versus 172K consensus.

Ø  In Asian USD credit, spreads generally tightened with JACI composite -8bps, JACI IG -7bps and JACI HY -18bps but yields rose due to the UST move. In sovereign space, INDON and PHILIP curves steepened with yields higher by about 5-15bps while KOREA and MALAYS curves rose 10-20bps WoW.

Ø  New issues: The Export-Import Bank of Malaysia and Tenaga Nasional Bhd are conducting roadshows for planned USD bond issuances.

Ø  Rating update: Asia Capital Reinsurance group’s rating (A-) was put on negative watch by S&P while being assessed the impact of the change in ownership after its major shareholder, ACR Capital Holdings, agreed to takeover by Shenzen Qianhai Financial Holdings. The new owner lack overseas reinsurance track of record and therefore less certain to form an expectation on business risk profile, investment and capital management strategy.

·         CDS: EM Asia 5y CDS spreads narrowed marginally WoW, led by Malaysia and Indonesia -2bps each while other countries were between unchanged to -1bps for the week.