20 April 2017
Credit Markets Update
Higher Oil
Prices Push Malaysia’s Inflation to 8 Years High
MYR Credit Market:
¨ Govvies
closed near to previous level. Trading volume totalled MYR2.1bn with
investors remained focused in the short-to-belly of the curve. Little change in
benchmark yields with the 5y, 7y and 10y MGS settled -1bp to +1bp at 3.78%,
4.00% and 4.11% respectively, although the 3y MGS fell 4bps to 3.46% amid
stronger MYR of 4.401/USD.
¨ Higher
inflation in Malaysia. The headline inflation picked up further to 5.1% in
Mar (Feb: 4.5%), the quickest pace since Nov-2008, driven by higher fuel prices
compared to the year earlier. Looking ahead, our economists expect inflation
rate to increase to 3.0% for 2017, from 2.1% in 2016, on the back of higher
fuel prices, rationalization of the subsidies, higher business costs as well as
imported inflation from weak MYR.
¨ Top
traded corporate bonds also ended flattish. Trading volume improved 47% to
MYR408m, compared to the day earlier. Top traded was PASB 6/17 with MYR130m
ended flat at 3.48%. Other top traded also moved sideways – KLK ’26 was
unchanged at 4.63% on MYR50m trades; Digi ’24-27 settled at 4.48-4.60%
(unchanged to -2bps); while LPPSA ‘22 declined 1bp to 4.14%. Elsewhere JEP
’21-22 ended firmer at 4.52-4.57% (-1bp to -9bps).
APAC USD Credit Market:
¨ UST bear steepened. 2y note gained 1.6bps to 1.18% while the
10y bond yield closed at 2.21% (+4.6bps) as April’s Beige Book showed that the
U.S. economy expanded at a modest-to-moderate pace from mid-February to the end
of March. The U.S. Dollar Index advanced to 99.74 (+0.24%).
¨ Over in Asia, iTraxx AxJ tightened
marginally to 102.1bps (-0.3bps), with Swire Pacific Ltd, Singapore
Telecommunications and Reliance Industries Ltd as the best performers in the
constituent. The IG space picked up 1.1bps to 185.0bps, while the HY stayed
firm at 6.39%.
¨ In primaries, ICBC Singapore (issue
rating: NR/A/NR) raised USD2bn across two-part bonds (refer to Table 2).
Elsewhere, Times Property (issue rating: B2/B/B+) priced USD225m 5NC3
bond at 5.75% compared to its IPT at 6% area. The issuance garnered high
demand, with BTC of 4.9x.
¨ In the rating space, S&P revised
ENN Energy’s outlook from stable to positive, affirming its rating at BBB.
This is to reflect S&P’s view that the company’s credit metrics are likely
to improve on the back of higher profitability. Its FFO-to-debt ratio is
expected to increase from 28.6% in 2017 to 31.6% in 2019, approaching the
upgrade trigger of 32%.
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