MYR Credit Market: MGS falls as trading weakens. Trading volumes fell and liquidity dried up in bond and currency trading in EM Asia remained lacklustre as investors preferred to remain on the sidelines ahead of FOMC following bullish economic data from th

31 July 2017

Credit Markets Weekly

MGS Falls as Trading Weakens; USD Falters; Busy Rating Actions

SUMMARY:

¨      MYR Credit Market: MGS falls as trading weakens. Trading volumes fell and liquidity dried up in bond and currency trading in EM Asia remained lacklustre as investors preferred to remain on the sidelines ahead of FOMC following bullish economic data from the US a week before. This continued despite the continued weakness of the USD over the week. The MYR rallied WoW to end the week at 4.2813/USD (+0.06%) underperforming most all major EM Asia currencies.

Corporate News – RAM Ratings assigned an AAA/Sta rating on TNB’s MYR5bn sukuk program. The rating is still supported by expectations the extraordinary government support in the event of financial distress. TNB’s adjusted gearing ratio and funds from operations debt coverage are expected to weaken to 1.25x (1.17x currently) and 0.20x (0.27x currently). Concerns remain on TNBs plans to expand up to 5,000MW in new generation capacity internally by 2020 on the financial metrics.

¨      APAC USD Credit Market: Treasuries bear steepened with the 10y UST climbing to 2.29% or +5bps higher WoW, while the 2y was a tad higher at 1.35% (+0.7bp) despite the dovish-tilted July FOMC post-meeting statement and the positive economic data the week before. The US 2Q GDP grew at 2.6% YoY compared to estimates of 2.7% (1Q17: 1.4%). As was expected, the US Fed left interest rates unchanged at the July FOMC meeting, highlighting the Fed’s balance sheet reduction plans will start ‘relatively soon’ while recognising that inflation may be below the Fed’s expected 2% target.

Rating Actions – Moody’s downgrades 2 Indian banks; Indian Overseas Bank and Central Bank of India to Ba3 from Ba1; Moody’s cuts the baseline credit assessments of ICICI Bank and Axis Bank to ba1 from baa3; both affirmed at Baa3; China Hongqiao’s ratings were slashed to B, remaining of negative watch with S&P; S&P changed Shimao Property Holding’s outlook to stable from negative, affirmed at BB+; Fitch downgraded Hengdeli Holdings Limited to B-/Sta from B+; Fitch revised Oceanwide Holdings’ outlook to Neg, affirmed at B; S&P upgraded EnergyAustralia (EA) to BBB+/Sta from BBB/Pos; Moody’s places China Travel Service’s (CTS) Baa3 rating on review for upgrade; S&P revised CK Hutchison Holdings Ltd’s outlook to positive, affirmed at A-; Moody’s changed the outlook of China Resources’ Gas Group’s Baa1 rating to positive.

Table 1: Index Weekly Movements

Indices	28-Jul	21-Jul	Weekly Chg (bps)
iTraxx AxJ 5y IG	82.0	84.2	-2
AxJ IG Spread (bps)	168.6	172.1	-4
AxJ HY (%)	6.67	6.64	3
SOR 2y (%)	1.26	1.26	0
SOR 5y (%)	1.73	1.73	1
Malaysia 5y CDS	79.8	84.0	-4
MGS 3y (%)	3.31	3.36	-5.5
MGS 5y (%)	3.69	3.66	4
MGS 7y (%)	3.92	3.89	3
MGS 10y (%)	3.98	3.91	7
AAA 5y Spread* (bps)	60	62	-2
AAA 10y Spread* (bps)	67	72	-6
AA 5y Spread* (bps)	96	98	-2
AA 10y Spread* (bps)	103	109	-6

Source: Bloomberg, BNM, RHBFIC        *MYR-denominated bonds

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