UST curve bull-flattened along the 2y10y with the 10y yield down 10bps WoW. No news is seemingly bad news for Trump’s reflationary bets as much optimism has been priced in. Core 10y sovereign yields like JGB, Gilt and Bund have either fully reversed or en route to recoup the selloffs in last November. That said, uncertainties

Credit Market Watch: Summary for week ending 24-Feb

·         MYR Credit:

Ø  MGS market rallied 7-9bps along the 10y15y WoW with foreign buying seen in the 7y to 15y part of the curve including the MGS 6/31. The new 7y GII 8/24 and 10y GII 7/27 continued to be well bid, strengthening 4bps and 9bps respectively WoW. Secondary trading activity for corporate bonds was a modest MYR2.7b with most in the 5-10y sector. Corporate bond supply is expected to pick up pace in the next few weeks.

Ø  Econs: External reserves stood unchanged from end-January at USD95b in mid-February. Inflation jumped in January with headline CPI printing at 3.2% YoY (Dec 2016: 1.8%) but was mainly due to the rise in transport costs and prices of food and non-alcoholic beverages. Core inflation remained stable at 2.3% YoY. Our economic research raises 2017 CPI forecast to 3.0%-3.5% from 2.5%.

Ø  FWU Life Insurance: MARC affirmed financial strength rating of AA- and changed the outlook from developing to stable as the merger between FWU Life and Skandia Austria has been terminated, hence business remains as usual for FWU Life. The agency did highlight possible financial pressure going forward given uncertainties in the Europe region following Brexit.

Ø  Relative value: GovCo, as usual, offer some yield pick over other GG names e.g. GovCo’27 about 15bps wide from fitted GG curve.

·         Asian Credit:

Ø  UST curve bull-flattened along the 2y10y with the 10y yield down 10bps WoW. No news is seemingly bad news for Trump’s reflationary bets as much optimism has been priced in. Core 10y sovereign yields like JGB, Gilt and Bund have either fully reversed or en route to recoup the selloffs in last November. That said, uncertainties still abound as President Trump will address before the Congress on Tuesday (US time) and both Fed Chair Yellen and Vice Chair Fischer will speak on Friday (US time). As we write, the future-implied probability of FFR hike is 40% in March FOMC and 73% in June FOMC.

Ø  Asian USD credit overall traded firmer although spreads widened a tad due to profit taking activities on the back of UST rally. Spreads on JACI composite, JACI IG and JACI HY added 2bps each WoW. On sovereign, MALAYS curve outperformed nudging 10-15bps lower while INDON, KOREA and PHILIP all traded about 3-8bps lower in yields WoW.

Ø  Rating changes: Parkson Retail’s rating was downgraded by Moody’s to B3 with a stay of negative outlook, following a similar action by Fitch last month. The agency cites that both the profitability and cashflows continued to deteriorate, with structural challenges in China’s retail market and intense competition from online retailers. Six underperforming stores were closed but failed to revise profitability. In 2016, sales declined and operating losses widened YoY. Since 2013, the rating of Parkson Retail has been under pressure with cumulative downgrades of 4-6 notches by S&P, Moody’s and Fitch due to continued operating challenges and deterioration in credit metrics.

·         CDS: EM Asia 5y CDS spreads tightening trend continued for the 6th week in a row, led by Indonesia -10bps, Thailand -9bps, China and Malaysia -8bps each while Philippines and Korea -4bps and -2bps respectively WoW.