Credit
Market Watch: Summary for week ending 10-Feb
·
MYR Credit:
Ø MGS were largely
constructive but then softened back amid external uncertainty. MGS yield curve
flattened with yields beyond the 5y point down by 3-4bps WoW while front end
yields were higher by 1-4bps WoW. In the corporate bond space, activity picked
up with MYR2.7b volume and market was largely better bid with notable interest
in Sarawak Hidro papers. Corporate bond yields tightened 1-3bps WoW.
Ø Sime Darby: MARC
affirmed Sime Darby’s AAA rating but maintained a negative outlook due to the
uncertainties and risks surrounding the group’s planned restructuring exercise
that may reduce business scale and diversification which helps support the
current rating.
Ø Econs: Our
economic research expects 4Q16 GDP, which is due for release on 16th Feb, to
print higher at 4.7% YoY (3Q16: 4.3% YoY) on quicker pace of Industrial
Production growth (5% in 4Q16 vs 3.9% in 3Q16) and slower but still resilient
index of services growth (5.9% in 4Q16 vs 6.2% in 3Q16). Meanwhile, Malaysia
exports/imports ended 2016 on a high note growing 10.7%/11.5% YoY in December,
bringing full-year growth to 1.1%/1.9%. Trade surplus narrowed to MYR87.2b from
MYR91.5b a year earlier. Our economics research forecast exports/imports growth
of 2%/2.5% and trade surplus of MYR85.6b in 2017.
Ø Relative value:
YTLP’s 2022 paper seem to have value last trading at 4.55%, which is 5bps above
our fitted line and 10bps below its 2024 paper. MEX II 2031 continues to offer
value last dealt again at 5.36%, 21bps above the fitted line.
·
Asian Credit:
Ø UST yields were
1-6bps lower and the curve flatter along the 2y10y WoW. At one point the 10y
UST touched a low of 2.32% as market started to doubt the tax and fiscal plans
by President Trump, but then his promise of “phenomenal” tax reform in the next
2-3 weeks sent yields back up. That said, it remains to be seen in details
whether the actual plans will be that “phenomenal”.
Ø Asian USD credit
market strengthened with lower yields and spreads grinding tighter. JACI
composite, JACI IG and JACI HY tightened 3-4bps WoW. Sovereigns saw a rally led
by INDONs after Moody’s raised its rating outlook to positive from stable. On a
WoW basis, INDON yields moved about 15-20bps stronger while KOREA, MALAYS and
PHILIP better by about 5-15bps.
Ø Rating changes:
Moody’s upgraded Indonesia’s rating outlook to Baa3/positive from stable,
citing signs of a reduction in structural constraints on its rating. What this
basically means is that Indonesia’s 1) external vulnerability assessment has
improved on a shift in monetary policy toward preserving macroeconomic
stability with current account deficit falling from 3% in 2013 to an estimated
1.8% in 2016, alongside 2) its improving institutional strengths with measured
and consistent progress in implementing structural economic, fiscal and
regulatory reforms accompanied by improved rankings in the World Bank’s Doing
Business report and Global Competitiveness Index.
·
CDS: EM Asia 5y CDS spreads
continued to tighten, led by Indonesia -9bps, followed by Malaysia -7bps, China
-5bps, Thailand -4bps and Philippines -3bps WoW.
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