FW: RHB FIC Credit Markets Update - 10/11/17

 

 

 

10 November 2017

 

Credit Markets Update

                                               

BNM Maintains OPR, Policy Tone Suggests Improving Macro Conditions; CDB USD500m Green Bonds

MYR Credit Market:

¨      MGS bear steepened with the 10y benchmark MGS rising 9bps to 4.08%, while the 7y gained 2.9bps to 3.98%. Both the 3y and 5y MGS ended flat at 3.50% and 3.71% respectively. The MYR was the top performing EM Asian currency, appreciating sharply by 0.54% to 4.2065/USD after BNM left policy rates unchanged at 3% at its eight straight meeting

¨      BNM maintains OPR; policy tone suggests improving macro conditions. BNM maintains the OPR at 3.00% in line with market expectations while observing the economic growth is more entrenched, with growth momentum lifted by stronger spill overs from the external sector. Investment in 2018 is expected to be sustained by infrastructure projects and higher capital investment in the manufacturing and service sectors. With BNM hinting that it may consider reviewing the current degree of monetary accommodation given the strength of global and domestic macroeconomic conditions, expectations should continue to embed themselves into bond yield pricing.

¨      MYR4.2bn of total transactions recorded as trading activities in the govvies space picked up strongly. Trades from shorter end of the curve were largely active accumulating 74% of the total trades. Off-benchmark MGS 03/18 remained top traded security as volume rose significantly to MYR1.8bn edging +9bps higher at 3.03% while the off-benchmark MGS 02/18 saw total trades rebounded to MYR688m settling +7.1bps higher at 3.03%. Benchmark 7y MGS 09/24 was well traded which saw MYR669m changed hands settling +2.9bps higher at 3.98%. Other top traded were off-benchmarks MGS 11/19 and MGS 07/21 recording MYR195m and MYR209m respectively with yields narrowed -2.6bps to 3.28% for the former while the latter widened +3bps to 3.69% respectively.

¨      Corporate secondary flows volume rebounded to a healthy MYR512m. AA-GG rated securities from the infrastructure and utilities sector accounted for 69% of the total trades. SEB 08/25, 01/27 and 07/29 saw combined trades of MYR145m to settle between 4.63% and 4.92% (+1bp to +1.7bps). KESTURI 26s, 28s, 31s and 32s recorded a total volume of MYR80m to settle at 4.739% (+3.9bps), 4.854% (+1.5bps), 5.079% (+0.1bp) and 5.169% (unchanged) respectively. AAA-rated issuers AQUASAR 28s and 29s transacted a total of MYR40m with both yields remained firm at 4.67% and 4.75% respectively while PUTRAJAYA 12/21 saw MYR30m changed hands at 4.26% (+3.5bps).

¨      Over in economic news, Malaysia's IP eased in Sep slowing to 4.7% YoY (+6.8% in Aug). This was a broad based slowdown partly attributed to a shortened work month but also mirroring the slowdown in manufacturing exports, particularly shipment of E&E products

APAC USD Credit Market:

¨      UST bear steepen weakened in the long end. The UST yield curve saw pressure especially ahead of the 30y UST auction which occurred. The UST yield curve saw a bear steepening as the 2y UST rallied -1.2bps to 1.63%, whereas the 10y UST fell +0.7bps to 2.34%. The 30y UST weakened further to 2.82% (+2.4bps). The release of the US Senate's version tax reform bill, with a plan to delay by a year saw expectations move markets. The DXY fell a further -0.44% to end the day at 94.44.

¨      IG credit spreads underperformed HY credit. The Asia ex Japan IG credit spreads tightened -0.6bps to 161.4bps, paring some of the widening the day before, while the Asia ex Japan HY bond yields widened to 6.62% (+2bps) overnight. The iTraxx AxJ IG spreads were largely unmoved at +0.1bps to 78.5bps. Leading the widening of CDS were Kookmin Bank and ICICI Bank which saw spreads widen +3.4bps to +4.4bps. The sovereign of Thailand saw CDS levels widen close to +1.2bps overnight. On the other side, Korea Development Bank and the Export-Import Bank of Korea saw CDS levels tighten close to -2.5bps respectively.

¨      In the primary market, China Development Bank (A1/A+/A+) issued USD500m green bonds at T+78bps v IPT of T+100bps. The proceeds would be used to refinance Green Projects including energy, transport and water sectors along the Belt and Road route in accordance with the CBD Green Bond Framework. It also issued EUR2.25bn additional bonds. China Minsheng Banking Corp Hong Kong branch (NR/BBB-/BB+) tapped the marked for 3y FRNs of USD450m at 3mL+92bps and 3y bonds of USD250m at 2.875%. Siam Commercial Bank (Baa1/BBB+/BBB+) tapped the market for 5.5y bonds worth USD500m at T+92.5bps whereas Telstra Corporation Ltd (A2/A/NR) tapped the market for USD500m 10y bonds at T+95bps. Yango Group Co Ltd (B3/B-/B-) issued USD250m bonds of 3y with a coupon of 7.50%.

¨      Over to ratings, Moody's upgrades Evergrande Group's rating to B1/Sta from B2/Sta. This rating reflects expectations that Evergrande will deleverage and maintain sufficient liquidity in the next 12-18 months with cash infusion of CNY60bn from investors investing in its subsidiary Hengda Real Estate Group Company Ltd.  From a slowdown of debt as part of its deleveraging plans, and growth in contracted sales growth of 10% over the next 12 months. In addition, the gross profit margin of Evergrande is expected to grow to 35.8% 1H17 from 28.3% 1H16. The combination of better sales and profit, the EBIT/interest is expected to improve to 2.3-2.5x over 12-18 months. Moody's also expects the cash/short-term debt over the next 12-18 months to increase above 1.0-1.2x from 0.9x end-June 2017. Fitch Downgrades Parkson Retail Group's rating to CCC/Sta from B-/Sta. This is based on the poor outlook for the company's liquidity for 2018, with USD500m 4.5% bonds maturing in May 2018 and substantially weaker cash flows compared to several years ago. Parkson does however have the option to use its retail properties in Beijing and Qingdao as collateral for secured lending. The leverage remains high with FFO payables-adjusted net leverage is expected to range 6-7x in the coming 2-3 years and FFO fixed-charge coverage at 1x.

 

 

 

 

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