FW: Credit Market Watch: Summary for week ending 22-Sep

 

Credit Market Watch: Summary for week ending 22-Sep

·         MYR Credit:

Ø  The MGS yield curve shifted 4-10bps higher WoW along the 5y15y amid softer bond sentiment. That aside, MGS found some support from the still steady USDMYR. Given the movement in govvies, corporate bond yields also rose by 1-4bps higher across credit curves. Volume traded totaled MYR2.1b, skewed to the belly 5-10y tenors.

Ø  Econs: Malaysia external reserves which rose another USD0.3b in the first two weeks of September to USD100.8b on the back of capital inflows are sufficient to mitigate capital flow risks based on IMF’s Assessment of Reserve Adequacy with a ratio of 115%. Unemployment rate ticked up to 3.5% in July (June: 3.4%). August headline inflation rate rose to 3.7% (July: 3.2%) mainly due to F&B and transportation costs, but core inflation remained contained at 2.4% (July: 2.6%). Our economic research team maintains their forecasts of 3.4% unemployment and 3.5-4.0% headline inflation.

Ø  Relative value: MACB 2020 offer value over similar tenor Danga and was last dealt 11bps wide from our AAA fitted line. Tadau Energy 2023 offer some pick-up last trading 39bps above the AA3/AA- fitted line.

·         Asian Credit:

Ø  UST yields climbed another 5-6bps higher WoW along the 2y10y with the 10y yield at 2.25%. The US Fed affirmed its monetary tightening bias, keeping dot plots unchanged for 2017 and 2018 which suggests another rate hike this year, in line with our expectation of one in December, and 3 hikes next year. In addition, the Fed announced it will begin to shrink its balance sheet in October starting with USD10b/month and will look to raise it by USD10b every 3 months to a maximum of USD50b/month.

Ø  Asian credit spreads tightened with JACI composite -4bps WoW. Sovereign curves rose higher with INDON, PHILIP AND MALAY up by 4-15bps WoW and KOREA relatively better up by just 2-5bps WoW.

Ø  Rating change: China’s sovereign rating was downgraded by S&P from AA- to A+, citing increased economic and financial risks after prolonged period of strong credit growth. Recall that Moody’s had earlier downgraded China’s rating to A1 in May. Notwithstanding the government’s recent intensification to rein in corporate leverage, S&P believes credit growth will continue to pose financial risks over the next 2-3 years. At the same time, S&P also downgraded Hong Kong’s rating to AA+ from AAA due to strong linkages with China as well as lowered its assessment of China banking industry and government-related issuers within its rating universe which include CNOOC, CNPC, Sinopec, China Shenhua Energy and State Grid Corporation amongst others.

·         CDS: EM Asia 5y CDS spreads widened back led by Indonesia +8bps, followed by China +4bps, Philippines +3bps, Korea and Malaysia +2bps each and Thailand +1bp WoW.