FW: Credit Market Watch: Summary for week ending 27-Oct

 

 

Credit Market Watch: Summary for week ending 27-Oct

·         MYR Credit:

Ø  MGS yields rose 14-15bps WoW along the 5y15y amid weak bond sentiment globally. 10y MGS yield rose 14bps to 4.05%, while corporate bond yields climbed 3-7bps WoW. Volume centered in the 5y-20y tenors. Cagamas printed 5y AAA-rated Islamic notes at 4.23%/MGS+50bps to raise MYR840m.

Ø  WCT: Outlook has been revised to AA-/stable from AA-/negative by MARC. The change in outlook reflects the agency’s expectations of improvements in liquidity and leverage such that net gearing declines to about 0.65x via an equity private placement next year that could raise ~MYR200m and asset monetization to contribute ~MYR350m. Improving construction and stable property investment performances support the AA- rating.

Ø  Budget 2018: Government aims to cut fiscal deficit/GDP to 2.8% and reiterated the 3.0% target for 2017, reinforcing fiscal discipline that should be marginally credit positive to the sovereign rating. For government bonds, we expect a gross supply of MYR107b in 2018 and revised up our 2017 forecast slightly to MYR107.5b (previously MYR107b). Our economics research team views the budget as balancing fiscal discipline with growth, while our equity research views it as positive for consumer, construction and tourism.

Ø  Relative value: PKNS 2020 was dealt at 4.69% or 21bps above our fitted AA3/AA- curve, but we are slightly cautious of its credit as larger private developers increasingly penetrate the affordable housing segment which is PKNS’ mainstay. Nonetheless, the company’s public policy role and strong connection to the Selangor state government entails a moderate likelihood of state support.

·         Asian Credit:

Ø  UST recovered much of the WTD losses on Friday after news of Trump leaning toward Jerome Powell instead of John Taylor, a perceived hawk, to be the next Fed Chair, thus pacifying the market that there will be a continuity of its existing slow and gradual rate hike path. UST curve ended the week 1-2bps higher along the 2y10y with the 10y up 2bps WoW.

Ø  Asian credits experienced some selling on the back of UST move although spreads remained resilient, with JACI composite -3bps, JACI IG -3bps and JACI HY -5bps WoW. USD sovereigns were generally about 3-10bps weaker for the week but MALAYS bucked the trend with yields lower by 2-8bps WoW.

Ø  China USD bond: Priced USD1b 5y at +15bps, tighter from +30 to 40bps IPT on 11x book cover (good at reoffer), and priced USD1b 10y bonds at +25bp, tighter from 40-50bps IPT on 10x book cover (good at reoffer). Allocations by geography comprised a good mix of 52%/28%/20% to Asia/Europe/Offshore US for the 5y bonds, and 47%/34%/19% to Asia/Europe/Offshore US for the 10y bonds. By investor groups, the allocations to 5y/10y were primarily to fund managers 51%/66%, banks 34%/12% and public sector 11%/16% respectively.

·         CDS: EM Asia 5y CDS spreads were mixed, with China –5bps on the back of its successful USD bond issuance, followed by Thailand -2bps and Indonesia -1bp, Malaysia and Philippines flat while Korea widened 1bp WoW.

 

Thank you.