FW: RHB FIC Credit Markets Update - 10/8/17

 

10 August 2017

 

 

Credit Markets Update

                                               

Risk-off on North Korea Concerns

MYR Credit Market:

¨         Benchmark MGS yields were a tad lower amid the escalating tensions surrounding North Korea as investors shift towards safe havens. MGS 3y inched -1.7bps lower to 3.27%, whereas the MGS 10y also slipped -1.2bp to 3.98%. Similarly, the soft market environment has led to the weakness in most EM currencies as the MYR settled at 4.289/USD (-0.09%).

¨         Quiet Govvies trading with MYR1.8bn in total (yesterday: MYR4.16bn). Trading in the GII concentrated on the shorter-tenure GII 11/17, 5/18, and 4/20 adding between +0.4bp to 13.2bps, whereas the MGS concentrated on at the longer-end. MGS 11/26 trading -4.7bps lower (MYR115m trades), while the benchmark 10y MGS settled -1.2bp lower on MYR210m trades.

¨         MYR stay active credits with volume at MYR596m albeit 19% slower compared to the previous day; yields settled mixed amongst financial names. Trades in the corporate space was focused on banking names, amounting to 65% of total trades. Top traded financials were HSBC Amanah 9/17 (-18.8bps to 3.70%), AMMB senior 8/19 (+6.3bps to 4.61%), AmBank senior 3/18 (-10.8bps to 4.0%) and OCBC IT1Pc19 (-38bps to 4.61%). Other notable trades were, Khazanah 6/22 narrowing -1.5bps to 4.13% on MYR80m dealt, BGSM 12/23 -0.7bp to 4.84% on MYR40m trades, while yields of CMS 5/22 compressed almost 3bps to 4.61%.

¨         Moving to economic data, June IP is scheduled to be released later today, with consensus expectations at 3.0% YoY compared to 4.6% in May.

APAC USD Credit Market:

¨         Washington-Pyongyang continue to grind market lower. US-North Korea tensions continue to increase geopolitical concerns. This occurs as North Korea threatened to target Guam, though more reconciliatory statements by the US Secretary of State Rex Tillerson managed to assuage a volatile market. Overnight, the Brent rose 1.07% to USD52.70/bbl while the DXY fell -0.11% as safe haven trades continued to dominate. The gold futures rose 1.32% overnight to USD1,273/oz. The 10y UST auction saw a weak BTC of 2.23x pushing up yields at the end of trading. The UST yield curve bull flattened falling -1.2 to -1.4 bps as the 2y UST ended at 1.34% and the 10y UST at 2.25%. Over in economic news, non-farm productivity rose 0.9% in 2Q17 (0.1%: 1Q17).

¨         Geopolitical tensions raise Asian CDS and yields. The Asian HY credit index rose 1bp to 6.75% as the Asian IG spread gained 1.4bps to 169.3bps on the back of compressing UST yields. With the rising geopolitical tensions, Asian CDS rose to 81.4bps from its multiyear low. South Korean CDS rose 4.2bps to 61.9bps, and major Korean names Kookmin Bank, SK Telecom, KT Corp, Samsung, POSCO, KDB and KEPCO widened between +2.5 to +5.9bps.

¨         Primary markets saw Country Gardens Holdings Co Ltd (Ba1/BB/BB+), tapped the market for USD100m 5nc3 bonds an addition to the current USD600m existing notes. The final issuance was at 4.78% vs IPT 4.80%. The proceeds will contribute towards the early redemption of USD550m bonds maturing in 2019 and towards working capital. Greenland Global Investment Ltd (Ba2/NR/BB) plans a 3y USD bond issuance, and China Huiyuan Juice Group (B1/NR/B+) plans up to USD200m, while Medco Energy Global Pte Ltd (NR) plans USD 5nc3 bonds. Lastly, 21Vianet Group (NR), a Chinese telecommunication company plans to tap the market for 3np2 USD bonds.

¨         Moody's places Yanzhou Coal Mining Co Ltd's B2 on review for upgrade. This follows its subsidiary Yancoal Australia's plans to raise equity to acquire Coal & Allied Industries Ltd, which is expected to improve its financial profile and operations.