FW: RHB FIC Credit Markets Weekly - 25/9/17

 

 

25 September 2017

 

 

Credit Markets Weekly

 

Fed Remains Resolute; S&P downgrades China and HK credits

 

SUMMARY:

¨      MYR Credit Market: Short trading week and concerns on the FOMC led to weak trading numbers. Weekly govvies trading moderated to MYR7.9bn below the 3-month weekly average of MYR12.6bn. MYR and MGS falter as the Fed saw USTs fall. The MYR saw a selloff in light of the rise in the USD, as the Fed maintained its expectations of a December rate hike. With the rest of EM Asia, the MYR gave back -0.14% WoW to end at 4.198/USD. Yields continue to bear flatten in line with the UST curve as 3y MGS rose 7bps to 3.38% whereas the 10y MGS rose 5bps to 3.91%.

¨      Corporate News – IOI Corp's rating was affirmed at Baa2 while its outlook has been revised to stable from negative. The revision in outlook is largely premised on its favourable position to be removed from the watch list of the Roundtable of Sustainable Palm Oil (RSPO) and the 70% divestment of IOI Loders Croklaan to Bunge Limited for a cash consideration of MYR4bn. Moody's was comforted by IOI Corp's swift actions in: a) addressing complaints lodged by Aidenenvironment (the environmental organization which filed for complaint against IOI); b) adding more stringent commitments to its sustainable palm oil policy (SPOP); c) IOI's ability to manage its business with minimal loss of customers, revenue and profitability despite the RSPO suspension to its downstream operations, mostly aided by higher crude palm oil prices recorded and certified inventory which minimized disruptions of its downstream production.

¨      APAC USD Credit Market: Asian credit markets divergence exposed by UST rally. The IG credit spreads saw a strong rally of -7bps WoW to 169.3bp outperforming the HY where the average HY yields rose +3bps WoW to 6.56%, as the UST curve saw a strong rally across the curve over the week. Asian credit protection cost continued to fall to 73.5bps (-5bps) as concerns of N Korea in the previous week seemingly largely priced out. Primaries saw a strong showing especially in the financial names; USD11.83bn deals printed.

¨      Rating Actions – S&P downgraded the rating on China to A+/Sta from AA-/Sta and HK to AA+/Sta from AAA/Sta leading to a slew of downgrades (see below). S&P downgraded Oceanwide Holdings Co Ltd to B- with a negative outlook; Fitch downgrades China Life Insurance Co Ltd to A/Sta; Fitch downgraded CTBC Financial Holding Co Ltd (CTBC Holding) and Taiwan Life Insurance Co Ltd (Taiwan Life) to A-/Sta; S&P downgrades Panda Green Energy Group (PGE) Ltd to B+/Sta; Fitch upgrades Country Garden Holdings Co Ltd to BBB-/Sta; Moody's upgraded ThaiBeverage Public Company Limited (ThaiBev) rating to Baa2/Sta; Moody's upgrades Yanzhou Coal Mining Company Ltd to B1/Sta from B2 on review.

 

 

Table 1: Index Weekly Movements

Indices	22-Sep	15-Sep	Weekly Chg (bps)
iTraxx AxJ 5y IG	79.7	73.5	6
AxJ IG Spread (bps)	165.6	169.3	-4
AxJ HY (%)	6.56	6.56	0
SOR 2y (%)	1.36	1.31	5
SOR 5y (%)	1.80	1.74	5
Malaysia 5y CDS	68.5	64.8	4
MGS 3y (%)	3.38	3.32	7
MGS 5y (%)	3.60	3.49	10
MGS 7y (%)	3.82	3.78	4
MGS 10y (%)	3.91	3.85	5
AAA 5y Spread* (bps)	69	75	-7
AAA 10y Spread* (bps)	71	75	-4
AA 5y Spread* (bps)	103	110	-7
AA 10y Spread* (bps)	108	112	-4

Source: Bloomberg, BNM, RHBFIC        *MYR-denominated bonds

 

 

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