FW: RHB FIC Credit Markets Update - 24/8/17

 

 

24 August 2017

 

 

Credit Markets Update

                                               

US Pres Threat Leads to Lower Yields; Malaysia CPI falls to +3.2% YoY

MYR Credit Market:

¨         The MYR gained another 0.08% yesterday to 4.279/USD following the Malaysia Jul CPI print, which slowed to 3.2% YoY compared to expectations of 3.4% YoY (prior: 3.6%) and the earlier improved Malaysia forex reserve. The MGS yields inched higher with the 3y MGS yields gaining +0.3bp to 3.37%, whereas the 10y inched +1bp higher at 3.97%.

¨         Govvies trading slowed to MYR2.0bn (MYR2.5bn yesterday). Trading was again concentrated in 3y, 7y and 10y benchmark MGS which represented 44% of total trades yesterday. Other top govvies trade were the non-benchmark MGS 9/18 on MYR130m, the GII 4/20 and 10/25 on combined MYR330m trades.

¨         Corporate segment trades surged to MYR1.5bn. The large chunk of it involved BGSM 12/17 and 12/18 with MYR994m changing hands, yields tightened between -1.1bp and -4.2bp to 4.15% and 4.29% respectively, followed by UMWH complex on combined MYR70m trades with yields compressing -1.9 to -15.3bps. In the quasi-government space, Prasarana 5/23, 3/24 and 12/30 traded between -1.1 to +6.1bp to settle at 4.55%, 4.68% and 4.91%, while Danainfra 3/32 and 5/32 tightened -0.3 and -2.8bp to 4.846% each.

¨         RAM assigns final rating of AA1 to Northern Gateway Infrastructure Sdn Bhd (Northern Gateway)'s proposed MYR340m MTN programme.  Northern Gateway is indirectly a wholly-owned subsidiary of DRB HICOM Berhad, of which the former has been awarded with a concession by the Government of Malaysia, through the Ministry of Home Affairs for the development of a new immigration, customs, quarantine and security complex in Bukit Kayu Hitam, Kedah (ICQS complex). The concession period commences from the construction date of 14 Jun 2014 and ending on 31 Dec 2043. The construction is divided into 2 phases, which is set for completion on 1 Sep 2017 and 31 Dec 2017 respectively. Furthermore, the rating has an irrevocable and unconditional financial guarantee insurance policy from Danajamin Nasional Berhad during the construction period which extends up to 31 Oct 2019 or up to the issuance of certificate of acceptance for Phase 1 and 2 of the ICQS complex.

APAC USD Credit Market:

¨         President Trump's threat leads to lower yields. The UST shifted direction yesterday as benchmark yields fell 1.7-4.7bps to see the 2y UST rise to 1.31% while the 10y UST rallied to 2.17%. This sell of risk occurred as President Trump in his speech threatened a government shutdown unless the on-going spending bill funds the building of the controversial wall along the border with Mexico amid pressure on the Congress to pass a spending bill to keep the government functioning beyond Sep. In the same speech, he also suggested the termination of NAFTA. The PMI data was mixed with August preliminary numbers for manufacturing PMI disappointing at 52.5 whereas the services PMI surprised at 56.9. The new home sales surprised with a -9.4% MoM fall vs consensus of 0% MoM. The cumulated result saw the DXY index also fall -0.43% to 93.15 in response. Elsewhere, Fitch warned that debt ceiling brinkmanship may threaten US credit rating should they fail to raise the debt ceiling in a timely manner.

¨         Asian credit markets still remains unchanged. The average IG credit spreads widened following the fall in UST yields, though at a smaller +1.0bps to 172.5bps. The average HY bond yields however remained unchanged at 6.71%. The average IG CDS spreads saw a slight tightening to 81.6bps. Sovereigns led the rally as Indonesia, the Philippines, Malaysia and China saw CDS spreads fall -1.5bps to -2.2bps while IDBI Bank rallied slightly to -1.5bps after the spike in CDS the day before.

¨         Over in the primaries, the primary market was still bare of major issuances. LS Finance (2017) Ltd (NR), guaranteed by Lifestyle International Holdings Ltd (Ba1/NR/BB+), has started a roadshow to sell USD bonds. China Great Wall International Holdings III Ltd (Baa1/BBBB+/A) which enjoys a Keepwell Deed from China Great Wall Asset Management Co Ltd (A3/A-/A) plans USD bonds in tranches with maturities of 3y, 5y and 10y.