FW: Credit Market Watch: Summary for week ending 1-Dec

 

 

Credit Market Watch: Summary for week ending 1-Dec

·         MYR Credit:

Ø  MGS strengthened on the back of the firmer Ringgit, which touched touch a 14-month low of 4.082 against the USD before retracing back to 4.09. MGS curve shifted 3-6bps lower on real money buying flows with the 7y10y on a slight inversion. Corporate bond yields mostly flat WoW with still muted volume (MYR1.5b).

Ø  Since the hawkish BNM MPC statement, front-end MGS (≤1y) outperformed by a large margin with yields maturing in 2018 down by about 50-60bps to 2.30-2.60% amid higher trading volumes, something not seen since Nov 2016, suggesting foreign fast-money positioning for Ringgit appreciation. We expect to see sizeable foreign inflows in November when BNM releases the data.

Ø  Banking: Some positive developments to note. Household loan growth sustained an upward trajectory with the annualized pace picking up to 4.5% in Oct compared to 3.0% in Feb. Nonetheless, annualized total loan growth slowed to 3.2% in Oct (Sep: 3.5%), dragged by the 1.5% pace for non-HH loans as corporate loan repayments outpaced drawdowns. Deposits growth kept up with loan growth expanding 4.3% YoY in Oct. GIL formation also appears to have slowed across most major consumer segments and overall ratio was marginally lower at 1.65% (Sep: 1.67%).

Ø  Relative value: PLUS 1/26 appear to have value trading at 4.70% which is 13bps wide from our fitted AAA curve. BEWG 7/20 offer some pick-up last trading 39bps above the AA2/AA fitted line.

·         Asian Credit:

Ø  UST curve gained 2-5bps along the 2y10y WoW.  Strong economic data and tax bill prospects had earlier in the week driven up the 10y yield to 2.41% before developments in the Russian probe pulled it back down to 2.36%. The passing of Trump's tax bill by the Senate over the weekend reignited bearish sentiment with the 10y yield now trading around 2.40%.

Ø  Asian credits spreads were mixed with JACI composite and JACI IG 1-2bps wider while JACI HY tightened 5bps WoW. Sovereign space weakened with INDON, PHILIP, CHINA, KOREA and MALAYS curves all up 2-5bps WoW.

Ø  Rating change: Tenaga Nasional Bhd rated BBB+ by Fitch saw its outlook raised to positive on improved financial profile following 2-year implementation of the Imbalance Cost Pass-Through (ICPT) mechanism, which entails tariff adjustments on half yearly basis. An upgrade will depend on consistent application of the ICPT in the 2nd regulatory period (2018-2020) whereby sufficient costs are passed through, particularly when generation costs rise above the benchmark costs which the agency expects in the next 12-18 months.

·         CDS: EM Asia 5y CDS spreads all tightened led by Korea -7bps, followed by Indonesia -4bps, China, Malaysia and Philippines –3bps each, and Thailand -1bp WoW.

 

Thank you.

 

 

 

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