FW: RHB FIC Credit Markets Weekly - 30/10/17

 

 

 

Credit Markets Weekly

 

Budget 2018: Fiscal consolidation firmly on track

SUMMARY:

¨      MYR Credit Market: Benchmark govvies yields edge higher across the curve, tracking the extended sell-off in USTs. Investors generally stayed on the sideline awaiting details from Budget 2018. The much anticipated Budget 2018 was released last Friday, with fiscal consolidation positively on track. Going forward, fiscal consolidation to progress well in 2018 as fiscal deficit is expected to reduce further to -2.8% of GDP. (2017:-3.0%). We expect the Federal Government's funding needs in 2018 to be funded primarily onshore via issuances of MGS/GII, with an expected gross MGS/GII supply of MYR107b (given that there is no scheduled USD Government of Malaysia sovereign debt maturity in 2018). Although gross supply appears somewhat sizeable due to combined MGS/GII maturities of MYR67b next year, net supply remains benign with an estimated amount of only MYR40b in 2018.

¨      The 3y MGS gained +9.7bps WoW to 3.51%, while the 10y jumped +13.4bps to 4.05%. EM Asian currencies deteriorated for the 2^nd week given the resurgence of the USD, the MYR traded softer by -0.40% WoW to 4.242/USD. Secondary market continues to see trades volume on govvies and corporates diverge; corporate bond trading took a breather; totaled at MYR1.8bn compared to MYR3.7bn traded in the prior week; MYR primary market supply halved to MYR2.3bn.

Corporate News – DanaInfra Nasional Berhad (GG) plans for MYR 7y, 10y, 15y and 20y bond sales. Expected issue size of MYR2.5bn, with an option to upsize and will likely to be priced in the following week, starting Oct-30.

¨      APAC USD Credit Market: UST yields edge higher; odds are leaning towards either Powell or Taylor as frontrunners for new Fed Chair position. Expectations are leaning towards Fed Reserve Governor Jerome Powell as possible new Fed Chair. Indian Banks led CDS tightening; New bond supply remains heavy; Total bond issuances was slightly under USD9bn, growing 20% WoW.

The market remain in suspense as the President continues to give mixed signals on the post of Fed chairperson and is now leaning towards Fed Reserve Governor Jerome Powell. Indian Banks led CDS tightening; New bond supply remains heavy; Total bond issuances was slightly under USD9bn, growing 20% WoW.

Rating Actions – Outlook on CIMIC LTD was revised by S&P from stable to negative; affirmed at BBB; Moody's has revised POSCO's stable outlook to positive; affirmed at Baa2; MLC Ltd was affirmed at A+ by S&P; outlook revised to stable from negative; IMB Ltd outlook was revised to stable from negative; ratings affirmed at BBB by S&P; Fitch has removed negative watch rating on Yingde Gases Group Co. Ltd; affirmed at B+; Moody's has assigned Heungkuk Life Insurance Co. Ltd a Baa3; stable outlook.

 

 

Table 1: Index Weekly Movements

Indices	27-Oct	20-Oct	Weekly Chg (bps)
iTraxx AxJ 5y IG	74.9	75.1	0
AxJ IG Spread (bps)	156.1	158.9	-2.8
AxJ HY (%)	6.62	6.58	4
SOR 2y (%)	1.50	1.44	6
SOR 5y (%)	1.98	1.88	10
Malaysia 5y CDS	62.5	63.0	-1
MGS 3y (%)	3.50	3.41	9
MGS 5y (%)	3.76	3.61	15
MGS 7y (%)	4.03	3.90	13
MGS 10y (%)	4.05	3.91	13
AAA 5y Spread* (bps)	55	71	-16
AAA 10y Spread* (bps)	60	73	-13
AA 5y Spread* (bps)	89	105	-16
AA 10y Spread* (bps)	101	114	-13

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

 

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.