Credit
Market Watch: Summary for week ending 26-May
·
MYR Credit:
Ø MGS curve
flattened a tad WoW as the Ringgit extended its gain against the USD. The
USDMYR pair came below the 4.30 level, the strongest since the selloff in
November. Front to belly MGS were little changed but long-end yields dropped
3-5bps along the 15y20y as this laggard part of the curve played catch-up.
Ø In the corporate
bond market, trading interest was moderate in the secondary market. Primary
segment continued to see new issuances coming to the market to price new bonds
taking advantage of the lower MGS curve. PASB priced MYR2.1b
government-guaranteed bonds with 3y, 5y and 7y tenors. Bank Rakyat raised
MYR1.2b via AA-rated Imtiaz Sukuk II with 3y and 5y tenors.
Ø Relative value:
UEMS offered pickup over the AA3 curve with both the UEMS’21 and UEMS’22 11bps
wide from our fitted line. UMW Holdings, which suffered a 2-notch downgrade
last year due to substantial deterioration in earnings and credit profile amid
losses in O&G segment and competitive landscape in its automotive sector,
continued to offer approx. 25-30bps pickup over similarly rated peers.
·
Asian Credit:
Ø UST yields were
little changed as the upward revision of 1Q17 GDP growth from 0.7% to 1.2%
didn’t move the market much – as it basically reiterates the fact that it
remained a weak growth in 1Q. The 10y UST yield inched up 1bp to 2.25%. This
week will see the release of May’s jobs data with surveys pointing to 185k
change in nonfarm payrolls (Apr: 211k), wage growth of 2.6% YoY (Apr: 2.5%) and
unemployment rate unchanged at 4.4%.
Ø Asian USD credits
were slightly wider with JACI composite +1bp, JACI IG flat and JACI HY +3bps
WoW. Sovereign curves were 1-5bps higher WoW except for the MALAY curve which
fell 2-5bps.
Ø Rating change:
China’s sovereign rating was downgraded by Moody’s from Aa3 to A1, citing
concern over rising economy-wide debt which the agency expect to continue in
the coming years. Growth, while robust and above similarly rated peers, is
partly tied to policy stimulus, which could contribute to the increase in debt in
the economy. Meanwhile, Moody’s also downgraded 26 government-related issuers
within its rating universe, among which include China Mobile Ltd, CNOOC, CNPC,
Sinopec, China Shenhua, Beijing Automotive, Guangzhou Metro, China Southern
Power, China Three Gorges and State Grid Corporation.
·
CDS: EM Asia 5y CDS spreads saw
mixed performance with China, Korea and Malaysia 2-4bps tighter while Indonesia
and Philippines 2bps wider WoW.
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