FW: RHB FIC Credit Markets Update - 31/10/17

 

 

31 October 2017

 

Credit Markets Update

                                               

MYR Bond Trading Quiet, UST Rally on Tax Reform Revelation

 

¨      MYR and MGS rallies post-budget. The MGS saw a rally mainly in the long end of the curve. The MGS 5y-10y rallied between -2.4bps to -3.3bps to close at 3.72%, 3.99% and 4.02% respectively. The 3y MGS was flat at 3.50%. The USDMYR recouped losses to close higher at 4.2378/USD (+0.10%), still underperforming the currencies of most of its neighbours. This despite the Malaysia 2018 budget at the end of the week showing fiscal consolidation remaining on track further supported by strong oil prices (+0.76% to USD60.9/bbl).

¨      Quiet trading session post budget. Govvies saw trade volume plummet to just under MYR1.1bn. Top trades were mostly from off-benchmark securities. The MGS 05/35 recorded the highest trade volume of MYR168m closing at 4.61% (+3.9bps). Other notable off-benchmark trades were MGS 03/23, MGS 02/18 and MGS 09/18 with amount of MYR123m, MYR72m and MYR66m respectively traded at 3.97%, 2.94% and 3.07% respectively. GII 08/18 also saw MYR150m changed hands closing at 3.14%.

¨      Corporate trading was weak as a mere MYR104m changed hands. UEM Sunrise 12/17, 12/18 and 12/19 saw a combined trades of MYR42m with yields changed of +4.4bps, -1bp and -9.3bps respectively. Other trades include UMW Holding 10/26, Korea Export-Import bank 03/18 and DANGA 09/27 with MYR10m recorded each with yields changed between +0.1bp and 0.8bps.

 

APAC USD Credit Market:

¨      Tax reform revelations rally the UST curve. Global risk appetite saw an unwinding following the latest revelations that the latest tax reform proposals, namely the corporate tax-rate cut could see a delayed phased 3% cut a year beginning 2018, which would see a delay in the expected growth dividends of this effects and disappointing investor expectations. Equities saw a fall while the USTs saw a rally. The 2y UST yields rallied -1.4bps to 1.57% while the 10y UST rallied -3.8bps to 2.37%. Further supporting this flattening were comments by Treasury Secretary Steven Mnuchin that the Treasury sees little demand for ultra-long USTs, leading to a rally in the superlong portions of the curve. Adding to the sentiment, news of arrests of President Trump's former campaign chairperson Paul Manafort, aide Rick Gates and foreign policy adviser George Papadopulous in the Russian probe in the US. The USD as seen by the DXY Index retraced to close at 94.56 (-0.38%). Markets will be looking forward to a busy week as the BoJ, FOMC and BoE meet while the US labour market report and China's manufacturing sector reports are also expected.

¨      Asian HY bond outperformed IG. IG credit spreads rose +1.8bps to 157.9bps, whereas the HY bond yields saw the opposite with a decline of -2bps to close at 6.60%. The iTraxx AxJ IG spreads remained unchanged to remain at 74.9bps. Top performer in this space was CapitaLand Ltd with the CDS spreads tightening by -6.15bps. Other top performers include GS Caltex Corp, Kookmin Bank and POSCO with spreads tightening between -1.35bps and -2.18bps. South Korea FIs led CDS widening as Woori Bank and Industrial Bank of Korea saw spreads increased by +2.86bps and +2.15bps respectively. This was followed by China FIs with China Development Bank, Industrial & Commercial Bank of China Ltd and Bank of China Ltd saw spreads changed between +1.11bps and +1.15bps.

¨      In the primary market. Chandra Asri Petrochemical Tbk Ltd (Ba3/B+/BB-) has priced USD300m benchmark 7nc4 bond at 5.10% against IPT at 6.5% area, with a BTC of 7.3x. Franshion Brilliant Ltd (NR/BB/NR) issued bonds guaranteed by China Jinmao Holdings Group Ltd worth USD300m following its recent USD500m issuance in Apr. The Pnc6 bonds were issued at 4.875% against IPT at 5% area. Huarong Finance 2017 Co. (Baa1/NR/A) plans to tap the market across three tranches which may be priced later today; USD 5y FRN at 3mL+155bps; 10y fixed notes at T+220bps area; 30y fixed notes at 5.25% area.  

¨      Over to rating, S&P has downgraded China Merchants Port Holdings Co Ltd ratings from BBB+ to BBB; outlook is stable. The China-based port company has been aggressive with their expansionary plans in line with the Belt and Road initiative. In the 2H17 saw the company entered into a concession agreement with Sri Lanka Ports Authority and the Sri Lanka government for the Hambantota Port in addition to 90% stake acquisition of Brazil-based Terminal de Conteineres de Paranagua S.A. S&P has forecasted that CMPort's funds from operations to debt (FFO/Debt) ratio to drop below the 20% downgrade-threshold level over the next 2 years. S&P assigned A- rating to ICBC International Holdings Ltd; outlook is stable. The Hong Kong-based operates as an investment and financial services company offering banking, securities brokerage, fund management as well as financial consulting. As a subsidiary to ICBC, the bank mainly taps mainland Chinese and Hong Kong companies through their parent's wide network of clients and customer distributions. S&P has forecasted asset growth to grow more than 2x of around HKD36.2bn with leverage to rise steadily from 4.8x as at end-2016 to be contributed by the cross-selling with their other business segments such as corporate finance, sales and trading as well as asset management. MNC Investama Tbk. rating lowered to CCC from CCC+ by S&P; outlook is negative. The downgrade on the Indonesia-based investment company was a result of rising financing risk which can be reflected on their insufficient credibility to repay their maturing USD-denominated notes in May 2018.

 

 

 

 

This message is intended only for the use of the person(s) to whom it is addressed and may contain information that is privileged or otherwise protected from disclosure. If you are not the intended recipient you are hereby notified that any use, review, disclosure or copying of this message and the information it contains is prohibited. If you receive the message in error, please notify the sender by reply e-mail and discard all its contents.   Thank You.