FW: RHB FIC Credit Markets Update - 27/10/17

 

 

 

27 October 2017

 

Credit Markets Update

                                               

30y MGS Reopening Gets Weak BTC at 1.60x

MYR Credit Market:

¨      Investors stayed cautious ahead of budget 2018. Amid the cautious sentiment, demand for the 30y MGS 03/46 reopening was rather cautious with a lacklustre BTC of 1.60x, closing yesterday with an average yield of 4.957%, partly due to its smaller issuance size of MYR2bn with another MYR500m privately placed. Compared to a similar auction earlier in the year (Feb), the recorded BTC stood at 2.56x (average yield: 4.676%). Post auction, the benchmark MGS 30y jumped 15bps to 4.96%. Other benchmarks edged higher by +1bp to +4.6bps across the MGS 5y-10y. The 3y MGS ended -1bp lower to 3.49%. Meanwhile, the MYR was mostly sideways at 4.2345/USD as market participants paused ahead of the ECB meeting.

¨      Govvies trading averaged at MYR2.4bn; 69% of govvies trading was mostly focused <3y. Top trades were mostly from off-benchmark MGS 02/18 and MGS 03/18 recording trades of MYR655m at 3.03% and MYR226m at 3.00% respectively. As expected, the 30y MGS was active with MYR412m changing hands.

¨      Secondary flows quiet; Corporate trading activities totaled to a mere MYR235m. Trades were mostly from the infrastructure and utilities issuers. JEP 12/24 was the highest traded with only MYR25m changed hands done at 4.69% (+2bps). Other active trades were, GENM Capital 03/22, PLUS 12/18 and UEM Sunrise 12/17 on MYR20m trades each settling at 4.61% (+1.1bps), 3.52% (-26.8bps) and 4.31% (+2.3bps) respectively.

APAC USD Credit Market:

¨      ECB meeting result and budget bill leave UST yields weakened slightly. The ECB, as expected, left interest rates unchanged expecting to maintain it for an extended period, while announcing its plans to extend the period of its expanded asset purchase programme (APP) to Sep 2018 or beyond while planning to reduce the amount of assets it buys every month to EUR30bn from the current EUR60bn from Jan 2018. Though largely expected and signals small steps by the ECB to taper its APP, it was considered dovish by the market which sold down the EUR. The US House of Representatives saw the passage of a 2018 budget resolution, limiting state and local deductions to help part fund the tax reform package debate in the Senate. The tax reform bill is now expected to be passed by the end of the year. The UST yields picked up +2bps to +3bps across the curve as the 2y and 10y USTs ended at 1.61% and 2.46% respectively. Over in economic news, the weekly jobless claims rose to 233k for the week ending 21 Oct from the low of 223k reported the week before. The DXY rose to 94.6 (+0.96% overnight) snapping a week long weakening trend.

¨      Asian bond markets stable. IG credit spreads rose +1bp to 157.6bps, whereas the HY bond yields saw the opposite with a decline of nearly -1bp to close at 6.60%. The iTraxx AxJ IG spreads remained unchanged overnight at 74.1bps. Performers in this space were Industrial & Commercial Bank of China Ltd, Bank of China Ltd and Reliance Industries with spreads tightening between -3.53bps and -3.41bps respectively. Worst performers were mostly in South Korean FIs, we observed that Kookmin Bank had highest change in CDS spreads (+4.6bps) followed by Korea Development Bank (+1.31bps), and EXIM Bank of Korea (+0.81bps). The South Korea sovereign CDS was a tad higher by +0.89bp.

¨      In the primary market. Hainan Airlines (Hong Kong) Co. (NR) guaranteed by Hainan Airlines Holding Co. will priced USD300m Oct 18 bond at 6.35% against IPT at 6.5% area.

¨      Over to rating, Moody's has revised POSCO's stable outlook to positive; affirmed at Baa2.  The Korean steel producer recorded decent improvement in operating income, rising approximately 46% YoY to KRW3.5trn between January and September 2017. Their Baa2 rating is expected to remain solid as Moody's sees a possible decline in adjusted Debt/EBITDA ratio from 4.1x recorded in 2016 to 2.8x over the next 12 to 18 months. The revision is also supported by their adjusted EBIT/Interest which is expected to increase over the same period from 3.9x to 7.0x. Their financial performance may be supported by the 20-25% YoY growth in adjusted EBITDA and around 15%-17% decline in adjusted debt based on Moody's forecasts. IBM Ltd outlook was revised to stable from negative; ratings affirmed at BBB by S&P. The revision was made on the back of weakening of risk adjusted capital ratio (RAC ratio) which hovered at 15% over the past 1 year, which is a reduction from S&P's earlier estimates of 20%, owing to increased economic risks and share buybacks ahead of expectations.

 

 

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