19 May 2017
Credit Markets Update
MGS Trades Falls; Markets Eye Malaysia 1Q17 GDP
MYR Credit Market:
¨
MYR and MGS continue to
fall. Following the
weakness yesterday the MYR weakened -0.10% to 4.3280/USD. The MGS curves
continued to weaken, as the Malaysian govvies yield spiked across the board.
The 3y MGS yields spiked 2.7bps to 3.33% whereas the 10y MGS rose 1.2bps to
3.94%. This followed the risk-off sentiment globally continuing to pressure
Asian currencies and supporting safe haven assets. The recent rally in risk
assets in the US overnight following the effects of better economic data, rally
in oil prices, and as concerns on the administration in the US was allayed
slightly, which should halt the pressures on EM yield curves.
¨
Govvie trades fall while
corporate trading improves. Trading of Malaysian govvies fell again to the lows of MYR1.7bn only
changing hands. This following, the large issuance of CIMB Bank bonds overnight
and the recent take-up of the 10.5y benchmark MGS bonds issued. Trading in the
corporate bond space however remained robust with a strong MYR618m changing
hands. Banking names saw increased interest as CIMB T2 21s callable bonds
falling to 5.28% (+23.7 bps), AFFINBANKs subdebt 22s callable bonds unchanged
at 5.11% (-0.7bps) and PUBLIC subdebt 10/18 callable bonds rallying to 4.34%
(-4.3bps).
¨
GDP and CAB will be
closely watched. Market
will be focused on the coming 1Q17 GDP numbers to be published later today.
Numbers are expected to be stronger in light of the rally in regional export
numbers in the quarter. The current account balance for 1Q17 will also be
watched to appreciate the effect of the recent FX administrative measures
introduced by BNM in December 2016.
APAC USD Credit Market:
¨
UST yields traded higher as risk-off
sentiment receded; 2y rose 2.2bps to
1.27%, while 10y note remained largely unchanged at 2.23% (+0.5bps) buoyed by
the release of better-than-expected economic data – initial jobless claims data
was lower at 232k (consensus: 240k), Philadelphia Fed Business Outlook came in
at 38.8 (consensus: 18.5). The U.S. Dollar Index advanced to 97.88 (+0.31%).
Separately, Brent price was higher as well, closed at
USD52.51/bbl (+0.57%) on optimism that OPEC and other big producers will extend
production cuts.
¨
Underperformance in Asian credits amid the US political turmoil. IG credit spreads climbed
to 180.4bps (+5.4bps); the HY space stayed firm at 6.55% (+0.5bps). Elsewhere,
the iTraxx AxJ IG widened by 3.3bps to 94.0bps. Banks continued to be the worst
performers in the constituent (i.e. IDBI Bank Ltd, Kookmin Bank and China
Development Bank).
¨ Moving
on to rating actions, S&P upgraded China
Evergrande Group’s rating from B- to B as a result of the company’s
improved liquidity on the back of better sales performance. Its EBITDA margin
increased to 20.9% in 2016 (18.5% in 2015). Moody’s expects the ratio to improve
to 23% in the next 12 months due to the recognition of higher-margin projects
sold in the past two years.
¨ Lastly on new supply, Amber Treasure Ventures Ltd (issue
rating: Baa2/NR/NR, guarantor: Nan Hai Corporation Ltd) sold USD500m
3NC1.5Y bond at par to yield 3.00%, its IPT was at T+180bp area.
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