FW: RHB FIC Credit Markets Update - 28/9/17

 

 

 

 

28 September 2017

 

 

Credit Markets Update

                                               

USTs Bear Steepen as Tax Reform Unveiled; GovCo Issued MYR1.2bn

 

MYR Credit Market:

¨      Primary markets saw a pickup as a total MYR2.2bn issued by five issuers. GovCo Holdings Berhad issued MYR1.2bn GG sukuks in four tranches of 5y, 7y, 10y and 15y. They will be issued with coupons 50bps, 48bps, 59bps and 60bps over the respective MGS benchmark yields. Hua Yang Berhad on the other hand issued MYR13m in monthly-paying unrated FRNs. Bousted Holdings Berhad issued MYR500m 7y unrated sukuk at 5.9%, 193bps over the last traded 7y GII.

¨      MGS trading sentiment softens in line with regional markets. The MGS curve yield curve pared back gains, whilst the short end of the curve was still supported. The 3y MGS rallied -1.6bps to 3.36%, while the 10y MGS weakened +2.4bps to 3.86%. This occurred following the weakening of global treasuries ahead of pricing in of the FOMC and the revelation of tax reform bill in the US. On the back of a still rallying USD, MYR weakened to 4.2215/USD (-0.36%), this time underperforming its regional peers. With the recent spike in global rates, potential retracement in MGS and MYR space may emerge.

¨      Govvies trading volume slowed to MYR1.8bn. Top traded were the 7y benchmark MGS 09/24 and the off benchmark 7y GII which saw MYR205m and MYR140m change hands +1.0bps and -0.7bps respectively. The 22s were active as well where MGS 3/22s and GII 04/22s both saw trades totalling MYR264m, with yields picking up 3.4bs and 3.5bps respectively.

¨      Strong flows in the corporate segment. Secondary market stayed active, recording MYR756m. MYR180m of which revolved around the trading of the newly minted GovCo 22s, 24s and 32s. GG rated PTPTN 03/32 and 08/32 saw trades of MYR50m each, at 4.82% (-8.4bps) and 4.83% (-5.2bps). Also well traded were YTL POWER 27s which saw MYR80m trades while IJM 06/22s saw MYR55m, each traded at 4.88% (+13.2bps) and 4.48% (-1.4bps).

APAC USD Credit Market:

¨      USTs bear steepen as US tax reform unveiled. USTs continue to price in continuing rate hike prospects by the Fed, with the futures implying a 70% probability of a rate hike following recent speech by Fed Chair Yellen. Adding on to selling pressure, Saudi Arabia tapped the USD bond space with a sizeable USD12.5bn print. Announced tax-reform bill plans by the cabinet and senior members of House Republican members seen fuelling further upside pressure for USTs yields. The USTs saw a strong bear steepening as the 2y USTs weakened +3.5bps to 1.47% whereas the 10y USTs ended at 2.31% (+7.5bps). As was expected the DXY Index followed on its rally to 93.36 (+0.42%).

¨      IG outperforms HY as yields rise. The average Asian ex Japan IG spreads tightened -2.5bps to 164.5bps, as the US Treasury curve began weakening once more. The average yield on HY Asian ex Japan moved on the opposite direction +4.0bps despite the falling USTs, likely reflecting the rising credit concerns arising from China. The average IG Asia ex Japan CDS were largely unchanged rising +0.6bps to 82.7. CNOOC Ltd saw the largest CDS move as it spiked +6.2bps overnight, despite the still strong oil prices seen in Brent crude at USD56.77/bbl. Korea Electric Power Corp, Samsung Electronics Co Ltd, Export-Import Bank of Korea  and United Overseas Bank subdebt all saw CDS levels widen +1.5bps to +3.8bps. Industrial Bank of Korea and Reliance Industries Ltd on the other hand saw CDS levels fall -2.1bps to -4.1bps yesterday.

 

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