MGS yields were little changed in a quiet week, with the 10y MGS yield at 3.88%. The USDMYR pair edged back up slightly to stay around the 4.28 level. Activity in the secondary corporate bond space picked up and corporate bond yields were a tad lower by 1-2bps compared to levels two weeks ago.

Credit Market Watch: Summary for week ending 2-Jun

·         MYR Credit:

Ø  MGS yields were little changed in a quiet week, with the 10y MGS yield at 3.88%. The USDMYR pair edged back up slightly to stay around the 4.28 level. Activity in the secondary corporate bond space picked up and corporate bond yields were a tad lower by 1-2bps compared to levels two weeks ago.

Ø  Rating change: Alam Maritim’s rating (BBB+/negative) has been placed on Negative Watch by MARC, citing increased repayment risk of the outstanding MYR75m sukuk (MYR30m due next month) as the company on 26 May 2017 entered into Corporate Debt Restructuring Committee (CDRC) mediated negotiations with lenders and sukukholders. The sukuk sinking fund had MYR25.3m as of 10 Apr 2017. A standstill letter has been issued to creditors while the company has 60 days to submit a debt restructuring plan.

Ø  Relative value: GENM Capital continued to offer pickup over the AAA curve with the 2022 bond 42bps wide from our fitted line. But some caution is warranted in the near term pending the court outcome on the First Light Resort & Casino construction expected by 19 Jun 2017 as an unfavourable outcome could drag on the credit.

·         Asian Credit:

Ø  UST yield curve flattened as yields from the belly to the long end decreased 7-9bps, while the front end was little changed. 10y UST yield fell 9bps to 2.16%. US labor data for May was a slight disappointment with nonfarm payrolls increasing at a weaker than expected pace of 138k (vs 185k estimate and 211k in April). Unemployment inched lower to 4.3% (Apr: 4.4%) but was due to a larger decrease in labor force, while wage growth unchanged at 2.5% YoY (Apr: 2.5%).

Ø  Asian USD credits were little changed with JACI composite -1bp, JACI IG -1bp and JACI HY flat WoW. In sovereign space, sovereign curves were flatter and lower by 2-8bps WoW, except for the MALAY curve which rose 1-2bps.

Ø  Rating change: Cheung Kong Property’s rating was upgraded to A from A- by Fitch, citing stronger financial position with net debt/recurring EBITDA below 2x and recurring income over cash interest expense of over 4.5x. The company has also exercised prudence in land acquisitions and saw increased recurring income from overseas acquisitions.

·         CDS: EM Asia 5y CDS spreads mostly tightened led by Malaysia and Indonesia -4bps each, followed by China -3bps, Philippines -2bps and Korea -1bp, while Thailand underperformed wider by about 1bp.