23 August 2017
Credit Markets Update
Treasury Fall on Risk Rally; Malaysia FX Reserve Breach USD100bn
MYR Credit Market:
¨ MYR climb on improved forex reserve. MYR advanced 0.11% to 4.2825/USD after BNM reported forex reserves climbed above the USD100bn mark to USD100.4bn, up USD1bn from USD99.4bn as at end-July. Reserves were sufficient to cover 7.9 months of retained imports and 1.1x of short-term external debt. Benchmark MGS tightened across the curve with the 3y settling at 3.36% (-1.5bp) and 10y at 3.96% (-0.6bp). On economic data releases, Jul CPI is expected to moderate to 3.4% from 3.6% in its prior print.
¨ Govvie Trading averaged at MYR2.5bn compared to MYR3bn seen in the previous trading session. Trades were mostly concentrated in the belly-to-longer end of the curve (70% of total trades). Benchmark MGS were again in focus, the 7y on MYR358m dealt tightened almost 1bp to 3.88%. Both 3y and 10y saw a combined MYR380m trades, while the longer-tenure 20y saw MYR112m changed hands, narrowing 0.9bp to 4.55%. The GII spectrum continue to receive decent flows, particularly with the benchmark 3y and 5y GII and the non-benchmark 7/22 GII garnering trades on MYR134m, MYR190m and MYR230m respectively.
¨ Flows in the corporate market rose to MYR735m. Cagamas was the most actively traded on combined MYR410m trades where tranches 11/17-7/24 compressed 1.8 to 7.1bps to 3.58% and 4.32%. Other notable transactions were Digi 4/27 tighten 1.6bp to 4.53%, while interest was yet again recorded in YTL Power with both 3/23 - 5/27 tranches tightening 1bp to 4.56% and 4.91% on a total of MYR45m dealt.
¨ RAM assigned preliminary AAA/Sta and AA1/Sta ratings to Danajamin Nasional Berhad's proposed senior and subordinated Sukuk Murabahah to be issued under Danajamin's proposed MYR2bn Sukuk Murabahah programme. The same issues were assigned similar ratings by MARC at AAAis and AA+is respectively.
APAC USD Credit Market:
¨ Treasuries fall on a risk rally as the 10y UST yields rose +3.1bps to 2.21%, while the 2y rose 2.0bps to 1.30%. The risk rally occurred as the US Secretary of State suggested restraint and negotiations in relation to North Korea, seen as an opening for diplomatic dialogue and allaying geopolitical concerns. As sentiments improved on the plans announced by President Trump on Afghanistan Monday night, and positive news flow come from the US Administration on progress made in the awaited tax reform bill, the risk rally has also spilled over to the USD. The DXY index rose +0.48% to 93.55.
¨ Asian credit markets mostly firm. The average IG credit spreads rallied as the average speculative bond yields were flat at 172.5bps (-1.0bps) and 6.71% respectively while the UST yield curve spiked. The iTraxx AxJ IG spreads on the other hand rallied to 82.0bps (-1.6bps) led higher by SBI (-3.6bps), Reliance Industries (-3.5bp), China Development Bank (-2.5bps), and Telekom Malaysia (-2.3bps). Indian lender IDBI Bank saw spreads widen +7.8bps as announcements by the Indian government of fast tracking consolidation of public sector banks, which includes the reduction in government shareholding. This occurs amid a workers strike on the bank yesterday and while concerns increase on the health of the loan books in India. The Securities and Exchange Board of India (Sebi) directed that from 1 Oct, listed companies needed to disclose defaults on loan repayments to financial institutions within one day, with a separate report to ratings agencies.
¨ West China Cement Ltd was upgraded by Fitch to BB-/Sta from B+/Sta. The upgrade was due to the significant improvement in its financial profile. The FCF has once again returned to positive while the net leverage has come down to 2.1x 2016 (3.6x in 2015), expected to reach 1.8x and 1.5x in 2017 and 2018.
¨ S&P revised Weichai Power Co Ltd to BBB/Sta from a Negative outlook. This follows successful debt deleveraging with the recent equity issuances of its subsidiaries in Germany. S&P expects that business integration, improved business performance from a solid market position in commercial vehicles and geographical diversification, supported by continued deleveraging plans to support the rating. S&P revised Beijing Automotive Group Co Ltd down to A-/Neg from a Stable outlook driven by a material decline in sales volume from increased market competition, unsatisfactory execution and reduced product appeal. The weakened competitive advantage of its propriety brands and joint venture business show 40% YoY declines. The increased reliance therefore from the Benz JV moving forward will increase concentration risk and therefore leave the company vulnerable to premium market volatilities.
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