Macquarie Bank Issued USD750m AT1 at 6.125%

2 March 2017

Credit Markets Update

                                               

Macquarie Bank Issued USD750m AT1 at 6.125%     

MYR Credit Market:

¨      MGS curve moved higher amid optimism from Trump’s speech and hawkish Fed members’ rhetoric. Benchmark 3y-10y rose 4-6bps with the 3y rising 6bps to 3.36%, in tandem with the increase of the 10y to 4.10%. About 44% of the trades in the govvies market was concentrated in the short-dated MGS ’18 which ended the day 8-10bps higher at 3.23-3.24%. Hawkish sentiment pushed the MYR 0.17% weaker to 4.45/USD as investors’ focus shift towards the MPC meeting today. We expect BNM to keep the OPR rate at 3.0% despite higher inflation print of 3.2% in Jan, as our economist believe the central bank could tolerate with the cost-push inflation from higher oil prices.

¨      Quasi-bond dominated trading activity. Volume totaled MYR772m where 61% of the trading activities were traded in the quasi-government sector. Notably, Khazanah ’18-20 settled at 3.85-3.99% (-4bps to +1bp) on combined MYR250m trades, while GovCo 2/32 was unchanged at 4.84%. Elsewhere, PLUS ’20-29 fell 1-8bps lower to 4.04-4.66%, with exception for tranche ’23 which rose 3bps to 4.31%. On the other side, yields for Cagamas ’18-19 rose 3-13bps to 3.87-4.00%.

APAC USD Credit Market:

¨      UST bear steepened; 2y UST yields rose 2.4bps to 1.28%, while the 10y note climbed to 2.45% (+6.3bps) following Fed speakers’ (i.e. Dudley, Kaplan, Williams) hawkish tone, stating that they favor three rate hikes if the economy is on track. The PCE Core MoM data released was in line with expectation (actual & consensus: 0.3%). The probability of rate hike in March jumped to 80% overnight, from 52% earlier. The reaction of the investors can be seen in the increase of DXY index and S&P 500 index as well, with DXY index picked up 0.65% to 101.78, and S&P 500 index rose to 2,396 points (+1.37%). Other US economic data released were mixed – ISM Manufacturing Index beat estimate (actual: 57.7, consensus: 56.2), Jan personal spending was below expectation (actual: 0.2%, consensus: 0.3%). Market responded well to the softer tone of President Trump’s speech to Congress although little was shared in regards to his Border Adjustment Tax plan. In terms of infrastructure plan, The President mentioned the intention to spend USD1trn on the project, without providing further details.

¨      Moving to Asia, the iTraxx AxJ IG was marginally tighter at 95.6bps (-0.2bps), with lower CDS spreads seen in Bank of China Ltd, CNOOC Ltd and PETMK. The IG credit spreads was lower as well, closing at 171.2bps (-2.7bps) yesterday, whereas HY bond yield picked up 2bps to 6.45%.

¨      In the primary market, China Everbright Bank (NR/NR/BBB) sold USD500m 3y bond at T+105bp against its IPT at T+130bp area. Keen Idea Global Ltd (NR), guaranteed by Beijing Properties (NR), a Chinese real estate developer priced USD300m 3y bond at 4.625% compared to its IPT at 5% area. Elsewhere, Macquarie Bank (issue rating: Ba1/BB/NR) issued USD750m AT1 Perp NC10 at 6.125%, its IPT was at 6.625% area. Olam International (NR) sold USD300m USD 5y bond at 4.5%, compared to its IPT at 4.65% area.

¨      Moody’s revised China SCE Property Holdings Ltd’s (“China SCE”) outlook from negative to stable, affirmed at B1. Premised on prospects of an improve credit profile, supported by strong earnings growth and better debt management. China SCE’s adjusted revenue/debt is expected to rise to 65-70% while interest coverage is also expected improve to around 3.0x, over the next 12-18 months. S&P placed Yuexiu Property’s BBB- rating on negative downgrade watch to reflect the high likelihood that the company’s leverage will weaken the credit profile of its parent company, Guangzhou Yuexiu Holdings Ltd. Yuexiu Property’s leverage is likely to remain elevated in the next 12 months, with its debt/EBITDA ratio rising from 8.2x in 2015 to 9.4x in 2016.

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