FW: Credit Market Watch: Summary for week ending 12-Jan

 

 

Credit Market Watch: Summary for week ending 12-Jan

·         MYR Credit:

Ø  MGS yields lowered about 2bps along the 10y15y WoW on the back of the Ringgit tailwind, with the 10y yield down 2bps at 3.85%. USDMYR pair declined towards 3.97 and is currently trading around 3.95/96 as we write. Corporate bond space saw solid buying interest for AA3-rated Southern Power Generation bonds, but otherwise, yields were little changed. Trading volume amounted close to MYR2b for the week.

Ø  Bright Focus: RAM maintained a negative outlook on the AA2 rating premised on continued higher than expected operating expenses in the last 2 years. The agency is concerned on possible weakening of debt coverage should operating expenses continue to remain higher than projected. Traffic performance wise, MEX highway, including the SK Link, registered a healthy 6.7% YoY growth to 142,462 vehicles in 11M17. MEX highway is scheduled to have toll hikes in 2018 and if materialize, it could impact traffic volume slightly.

Ø  Relative value: TNB Western 2033 and 2034 last traded around 5.08-5.09%, or 4-6bps wide from our fitted AAA line, offering value over TNB Northern 2034 which was dealt at 4.98%. Edra Energy bonds seem good for carry trading 40+bps over the AA3/AA- fitted line though downside risks are construction risk and potential downward revision in capacity rate financial.

·         Asian Credit:

Ø  UST weakened further with the yield curve rising 4-7bps along the 2y10y WoW, with the 2y UST yield ending 4bps higher at 2.00%, the first time it has reached this level since 2008. Yields jumped after CPI data showed a 2.10% YoY increase for Dec 2017 (+0.1% MoM) and core inflation picking up slightly to 1.80% YoY (Nov: 1.70%). The CPI print underscores expectations of rate hikes from the Fed.

Ø  Asian credits spreads tightened with JACI composite and JACI IG -3bps each and JACI HY -5bps. In sovereign space, INDON, PHILIP and KOREA rose 2-10bps WoW, while CHINA curve was mixed +/- 4bps WoW.

Ø  Rating change: 1) Bank Danamon Indonesia’s BB+ rating was placed on positive watch by Fitch, citing possibility of extraordinary support from Mitsubishi UFJ Financial Group Inc (MUFG, A/stable) once the latter obtains 40% shareholding in the former; 2) eHi Car Services Ltd’s BB- rating was put on Fitch’s negative watch premised on reduced financial transparency as the company has not published 3Q17 results and limited visibility over its long term strategy following an ongoing privatization exercise; 3) Fitch upgraded Indoexim’s rating to BBB from BBB- as the sovereign rating was upgraded back in Dec 2017.

·         CDS: EM Asia 5y CDS spreads all tightened WoW with Korea outperforming -5bps while Malaysia, Philippines and Thailand –2bps each and China and Indonesia -1bp each.

 

 

 

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