MGS First Auction; DXY Reached 14-year High

4 January 2017

Credit Markets Update

MGS First Auction; DXY Reached 14-year High 

¨      APAC USD Credit Market: UST yields on the rise; bear flatten led by the stronger set of US economic data i.e. ISM manufacturing, setting the expectation for further interest rate increases by the Fed. UST 2y surged 3bps to 1.21%, while the 10y was marginally higher at 2.44%. Brent oil price dipped 2.4% to c.USD55.5/bbl amid the backdrop of the stronger USD which touched its 14-year high (DXY index: +0.43 to 103.21), reversing earlier gains after Brent initially rose to as high as USD58/bbl on the solid Chinese PMI manufacturing print (actual: 51.9; consensus: 50.9). Moving to Asia, the iTraxx AxJ IG tightened 2bps to 119.2bps led by firmer high-grade Asian CDS (Swire Pacific, HK Land, Samsung Electronics). IG credit spreads and average HY bond yields held steady at 182.1bps and 6.84% respectively. Elsewhere, Westpac (issue rating: Aa2/AA-/NR) sold USD1.25bn 5y bonds at T+88bps against IPT at +105bps area and USD500m 5y FRN at 3mL+85.

¨      SGD Credit Market: SG private residential prices slip for 14th consecutive quarters. There was a mild flattening in the short-to-mid SOR curve, with the 2y rising by 1.3bp to 1.77% while the 5y dipped 0.8bps to 2.39%. Keppel Corp announced that despite failure of a buyer to make payment for the 80% balance on a jackup rig contract, the guarantor of the jackup rig will be stepping in instead. Singapore private residential prices continued to slip in 4Q16 by 0.4% QoQ, the fourteenth consecutive quarterly decline, or cumulatively by 11.2% since peaks in 3Q13.

¨      MYR Credit Market: BNM announced first auction for the year. Tender for 3y GII Reopening will be conducted tomorrow (5-Jan) with auction size came within expectation at MYR3.5bn. We view that demand for the 3y auction likely to be supported given the limited supply from the short-tenure this year (only two 3y auction to be tendered in 2017) where the WI was seen quoted at 3.73/63%. The 3y GII settled 3bps higher to 3.69% over the cash market yesterday, while other govvies benchmarks ended mixed on a quiet trading session. MYR breached the 4.49/USD level on the back of the persisting strengthening of the greenback. Corporate volumes totaled at MYR289m, where the top traded were CMBS 5/17 (-16bps to 3.98%) and PLUS 1/29 (-4bps to 3.74%).