FW: RHB FIC Credt Markets Update - 26/9/17

 

 

26 September 2017

 

 

Credit Markets Update

                                               

N Korea Saga Continues to Move Markets

MYR Credit Market:

¨      MYR dampened and MGS supported on increased risk-off. Coming off a long weekend, MGS followed the global trends of the day before as the 3y MGS eased -1.0bps to 3.38% whereas the 10y MGS rallied -1.6bps to 3.88%. The MYR on the other hand continued to weaken as it closed -0.15% weaker at 4.2045/USD, despite the strong rally in commodity prices led by oil prices. Oil prices as seen by the Brent crude rose a further 3.80% overnight to USD59.02/bbl on recent news that Turkey threatened to halt the transmission and therefore exports out of the Kurdish region leading to pricing in prospects of lower global supply. With little economic queues other than the upcoming BNM report on reserves, prices may continue to be driven by global trends.

¨      Trading remains weak as traded volume picked up to MYR2.2bn while corporate saw MYR400m traded. Govvie trades were well distributed with the short dated govvies making up less than a third of trades (MYR766m). Top traded was the 5y benchmark MGS 03/22 (-4.9bps to 3.54%) which saw MYR636m trades followed by the benchmark 7y MGS 9/24 (-1bps to 3.80%) on MYR367m. Weaker corporate trading largely saw trading in financial and infrastructure names. Long dated EKVE 31s 32s 33s 34s and 35s all saw trades totalling MYR110m. The sukuks saw yields move between +1.9bps to -10.1bps. of -1.9bps 5.10% PUBLIC subdebts callable 09/18 saw MYR50m change hands at 4.26% (-34.4bps) while CIMB THAI subdebt callable 07/19 saw  MYR20m traded at 4.83% (+2.8bps).

¨      The primary market saw an issuance of unrated sukuk SRSB IMTN by Setia Recreation Sdn Berhad totalling MYR434m. This 10y floating amortising Islamic note has a monthly coupon payment term. The next payment due in October will have a rate of 4.88%.

APAC USD Credit Market:

¨      USTs rallies on N Korea. Following the recent spike in UST yields amid lingering concerns over market expectations over live December hike odds, UST reversed to advance higher in price yesterday amid geopolitical tensions between North Korea and US, following comments by Korean Foreign Minister Ri Yong Ho prompting flight to safety flows. This led to risk off buying across asset classes. In addition, reports which reported that the upcoming Graham-Cassidy health care bill still lacks sufficient supporters in its current form continue to dampen sentiment and support UST prices. The USTs saw rallies led by the long end of the curve where the 10y UST saw yields fall -3.0bps to 2.22% while the 2y USTs fell -0.8bps to 1.42%. The DXY continued to gain especially on the back of a selldown in EUR following the results of the German elections and saw index levels rise +0.52% to 92.65.

¨      CDS levels move on China downgrades. The average Asian ex Japan IG spreads and the average yield on HY Asian ex Japan remained largely unchanged at 165.5bps (-0.1bps) and 6.56% (+0bps) despite the strong rally in USTs the day before. The average IG Asia ex Japan CDS remained largely unchanged at 80.00bps (-0.06bps). Industrial and Commercial Bank of China and Bank of China Ltd both saw CDS spreads rise +2.4 to +2.5bps respectively, partly attributed to the recent downgrade in China and HK by S&P. The same could be said for Hutchison Whampoa Ltd, PCCW-HKT Telephone Ltd, CNOOC Ltd, Export-Import Bank of China, and China Development Bank, where CDS spreads widened +1.2 to +1.8bps. On the other side, Industrial Bank of Korea and Singapore Telecommunications Ltd both saw CDS tighten -2.0 to -2.7bps.

 

 

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