MGS yields moved sideways last week. Govvy prices and MYR failed to move higher on OPEC’s agreement to cut oil production. Corporate bonds was more active posting MYR5.1b trading volume, but yields were little changed.

Credit Market Watch: Summary for week ending 30-Sep

·         MYR Credit:

Ø  MGS yields moved sideways last week. Govvy prices and MYR failed to move higher on OPEC’s agreement to cut oil production. Corporate bonds was more active posting MYR5.1b trading volume, but yields were little changed.

Ø  Banking stats: Loan growth decelerated further to 4.2% YoY in Aug (Jul: 5.1% YoY) dragged by slower business loan growth of 2.2% YoY (Jul: 4.3% YoY), while expansion of household loans stayed firm at 5.7% YoY. Total credit growth, which takes into account both loans and bonds, was a moderate +5.4% YoY. Loan application and approval data continued to show contraction. Deposits stopped declining, but growth was meagre at 1% YoY, thus unsurprisingly LDR ticked up to 89% end-Aug (Jul: 88.8%). Asset quality remained steady with GIL ratio at 1.66% (Jul: 1.68%), though absolute GIL rose 8% YoY.

Ø  Relative value: PLUS 36 and 37 appear to offer relative value in the PLUS curve as the 2035 and 2033 papers last traded close to GG levels at 4.68% and 4.55% respectively, while PLUS 36 and 37 last traded 15-20bps higher than similar tenor GGs. Sepangar 26 seem to have value in the AA1 space, last dealt 12bps higher than the fitted line. RAM affirmed Sepangar’s rating in Jul 2016 with a stable outlook, and we note that the power plant has a commendable track record with very little operating issues and strong debt coverage.

·         Asian Credit:

Ø  UST market continued to tussle between hike and no hike in response to new economic data. Last week the 5y and 10y UST yield declined 1-2bps partly because market was concerned about Deutsche bank evolving into “Lehman moment”. But at the start of this week yields rose higher the rebound in the US ISM Manufacturing index to 51.5 in Sep from 49.4 in Aug. Future implied probability of hike edged up to ~61% as we write from about 51% a week ago.

Ø  In Asian USD credit, spreads generally widened WoW with JACI composite +9bps, JACI IG +8bps and JACI HY +14bps. On sovereign, both the INDON and PHILIP curves rose about 5-10bps WoW. KOREA and MALAYS showed relative resilience, but started this week in a softer tone.

Ø  RHB Bank raised USD500m from 5y senior bonds at T+137.5bps on >USD1.9b order book. By region, allocation was 84%/16% to Asian/EMEA investors; by investor type, allocation was 66%/24%/10% to fund managers/banks/the rest.

Ø  TNB was reported to be planning USD3b sukuk and investor meetings may be held in October, according to Bloomberg news.

Ø  Rating update: Tata Motors’ rating was upgraded to Ba1 from Ba2 by Moody’s, citing improved results and expectation of continued strong performance due to the recovery in commercial vehicle cycle. Its wholly owned subsidiary, Jaguar Land Rover which contributes 82% of revenue and 86% of EBITDA, will continue to drive Tata Motors’ operating and credit metrics. The agency expects both leverage coverage and margins to improve further.

·         CDS: EM Asia 5y CDS spreads mostly widened WoW, led by Philippines +10bps, followed by Indonesia +6bps, China +4bps, Korea +2bps and Thailand +1bps WoW, while Malaysia bucked the trend tightening 4bps last week.