Markets Holds Breath on Yellen’s Promise to Hike

Credit Markets Weekly

Markets Holds Breath on Yellen’s Promise to Hike

SUMMARY:

¨      MYR Credit Market: MGS curve bear flattened as the coming Fed hike moves the short end. Govvie yields increased across the curve with the 3y MGS rising 10bps WoW to 3.48%, the 10y MGS increased 1bps WoW to 4.15%. The MGS movements were more constrained compared to DM govvies which saw large upward spikes especially in the longer end over expectations of the US Fed hike this coming week. Govvie outflows rose once more. Foreign holdings in the MGS+GII reduced by MYR7.6bn to MYR179.4bn during the month of Feb-17 as the MGS market saw heavy maturities of MYR8.75bn during the month. When considered in the context of the US presidential elections, a selloff totalling MYR35.5bn was seen since Nov-16.

Corporate News – The MYR primary market saw a resurgence as over MYR6bn of corporate bonds were issued last week alone, compared to YTD issuances of MYR7.9bn. Major issuers included Cagamas (AAA) which issued MYR2bn, SapuraKencana (UR) which issued 4 tranches totalling close to MYR3.3bn and SME Bank (GG) which issued 2 tranches totalling MYR600m.  

¨      APAC USD Credit Market: The 10y UST bond yield jumped 10bps WoW to 2.57% as the Fed is expected to raise rates at its March FOMC meeting in the week ahead as economic data has been strong in 2017 in particular the jobs and inflation numbers, reinforced by last Friday’s better-than-expected employment report with job gains of 235k. Looking ahead, market participants will be closely eyeing the Fed dot plot, whereby a median forecast of four rate hikes in 2017 and a hawkish Fed Chair Yellen could see UST 10y testing the resistance level of 2.63%; Risk off sentiment hits APAC credits; Active primaries ahead of EU political risk and March FOMC.

Rating Actions - S&P upgraded PT Astra International Tbk’s LT rating from BBB-/Sta to BBB/Pos. Fitch upgraded Indosat Tbk PT’s LT rating from BBB/Sta to BBB+/Sta. Moody’s slashed Hengdeli Holdings Ltd to B1/Neg.

Table 1: Index Weekly Movements

Indices	10-Mar	3-Mar	Weekly Chg (bps)
iTraxx AxJ 5y IG	96.6	94.5	2
AxJ IG Spread (bps)	173.3	171.2	2
AxJ HY (%)	6.52	6.56	-4
SOR 2y (%)	1.71	1.66	5
SOR 5y (%)	2.27	2.17	10
Malaysia 5y CDS	113.0	108.4	5
MGS 3y (%)	3.44	3.39	5
MGS 5y (%)	3.84	3.82	2
MGS 7y (%)	4.10	4.05	5
MGS 10y (%)	4.18	4.17	1
AAA 5y Spread* (bps)	48	75	-27
AAA 10y Spread* (bps)	49	55	-6
AA 5y Spread* (bps)	85	111	-26
AA 10y Spread* (bps)	89	96	-8

Source: Bloomberg, BNM, RHBFIC        *MYR-denominated bonds