Poor Demand for New 5y MGS 3/22 Auction

10 March 2017

Credit Markets Update

                                               

Poor Demand for New 5y MGS 3/22 Auction

MYR Credit Market:

¨      Poor demand for the 5y MGS 3/22. The MYR4bn new auction garnered low BTC of 1.54x or the lowest BTC recorded this year, was priced at average yield of 3.882%. Govvies stayed bearish, tracking higher UST yields given the strong US ADP employment print earlier as the MGS yields climb 1-4bps higher across the 5y-10y, with the 5y and 10y settling at 3.85% and 4.18% respectively. Elsewhere, the MYR weakened to 4.4605/USD amid tumbling Brent oil prices of USD52.2/bbl (-1.7%), while the Malaysian 5y CDS crept up 4.4bps to 114.7bps.

¨      Active trading day with MYR613m changing hands. More than 50% was concentrated in quasi-government sector. The top traded was TPSB 11/32 adding 29bps to 4.855%, Khazanah 3/20 tightened 5bps to 4.037%, whereas PLUS 38’ tightened 5bps to 4.90%.

APAC USD Credit Market:

¨      UST traded lower yesterday for the fourth consecutive session, with 2y note edged up to 1.37% (+1.8bps), while the 10y bond yield was higher at 2.61% (+4.6bps). The sell-off following ECB President Draghi’s comments on the economic forecast in his press conference after ECB Monetary Policy Meeting. He said that they are forecasting faster growth and inflation in 2017 and 2018 than they had previously. The initial jobless claims missed estimate (actual: 243k, consensus: 238k), rebounded from 44-year low. The DXY index slipped by 0.2% to 101.85. Labour market data will be released tonight, and a strong result is likely to seal the deal of March rate hike.

¨      Weak sentiment seen in the Asian financial markets as investors turned cautious ahead of the FOMC meeting next week. The IG spreads widened by 0.9bps to 171.8bps, while the HY credit spreads climbed to 6.62% (+7.0bps). The iTraxx AxJ IG index moved in a similar direction as well, closed at 96.7bps (+1.4bps). The main index underperformers were Reliance Industries Ltd, GS Caltex Corp and Bank of China.

¨      In the primary space, Lenovo Group Ltd (NR) priced USD500m 5y at T+180bp, against its IPT at T+190bp area. KWG Property (issue rating: NR/B+/BB-) sold USD400m 5.5NC3 bond at 6%; its IPT was at 6.125% area. Top Wise Excellence Enterprise Co. Ltd, guaranteed by Kangde Xin Composite Material Group Co (Ba3/NR/BB), a Chinese plastic product manufacturer sold USD300m 3y bond at 6% compared to IPT at 6.5% area. The company’s maiden USD issuance, receiving a strong BTC of 6.3x.

¨      Over to rating action, Fitch assigned first-time LT rating of ‘A’ to Bocom Leasing Development Hong Kong Company Limited (Bocom Leasing HK), a subsidiary of Bank of Communications Co. Ltd. The rating is to reflect Fitch’s view that the parent company is likely to support Bocom Leasing HK as it is very integrated to the parent company’s operations. Elsewhere, S&P upgraded PT Astra International Tbk’s LT rating from BBB-/Sta to BBB/Pos to reflect the company’s conservative financial risk management policies and S&P expects Astra to have high repayment ability as it has solid balance sheet in 2016.

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