FW: Credit Market Watch: Summary for week ending 26-Jan

 

Credit Market Watch: Summary for week ending 26-Jan

·        MYR Credit:
Ø        MGS yield curve flattened as short end yields rose on the back of the 25bps OPR hike, while the long end declined 3-5bps WoW as market views there is only one rate hike for the year. 10y MGS yield down 3bps WoW to 3.93%. Short end corporate bond yields followed suit rising 1-3bps higher, while yields elsewhere were little moved amid a quiet week (MYR1.5b volume).
Ø        Smart Holdings: Projek Smart Holdings Sdn Bhd was downgraded to A1 from AA2 by RAM, citing deteriorating debt servicing indicators due to persistent traffic decline at Smart Tunnel. Traffic volume shrunk 30% since the toll hike in Oct 2015 compared to a CAGR of 13.3% in the first 7 years. The rating remains on negative outlook on near term concerns of sustained traffic decline given 2 rate hikes scheduled in the next 3 years. A possible turnaround could come from financial support from shareholders, Gamuda and MMC Corp.
Ø        OPR +25bps. BNM increased the OPR by 25bps to 3.25% which came earlier than our expectation of a post-Election hike in May. Barring upside surprises to growth and inflation, we keep the view of a single rate hike and are not expecting another one this year. The hike is expected to expand banks’ NIM and earnings, with Alliance Bank estimated to benefit the most due to its higher mix of variable rate loans and CASA, and HL bank the least, according to our banking analyst.
Ø        Relative value: SPG 2035 appear to have value compared to DUKE3 2035 as the former was dealt 20bps wider than the latter. Of late, a few toll road projects have been downgraded on weaker than projected traffic performance amid toll rate hikes and opening of new public transportation.
·        Asian Credit:
Ø        Despite the US 4Q17 GDP growth missing expectations at 2.6% YoY (Consensus: 3.0% YoY), yields continued to march higher. The UST curve bear-flattened along the 2y10y WoW with 2y yield up 5bps, 5y yield up 2bps while the 10y unchanged at 2.66%. 10y government bond yields in other developed markets saw a fairly synchronised move upwards roughly by 2-10bps WoW.
Ø        In Asian credit, yields were generally higher on the back of UST moves but spreads were little changed with JACI composite flat, JACI IG -1bps and JACI HY +2bps WoW. In sovereign, performances were mixed with CHINA’27 unchanged, INDONs between +/-2bps, MALAYS flat to 2bps tighter and PHILIPs mostly a tad wider WoW.
Ø        Rating change: 1) Fufeng Group Ltd was upgraded to BB+ from BBB- by S&P, citing likelihood of the company sustaining low debt leverage in the next 2 years given more conservative financial policy, stable profitability and revenue diversification; 2) Ratings of Development Bank of the Philippines and Land Bank of the Philippines were upgraded to BBB from BBB- by Fitch due to upward revision of support rating floors following the sovereign’s greater capacity for support after it was upgraded to BBB (from BBB-) in Dec 2017.
·        CDS: In EM Asia 5y CDS spreads, Indonesia outperform tightening -2bps, followed by Thailand -1bp, while Malaysia and Philippines were both flat, and China and Korea each +1bp WoW.



Regards,
 
Winson Phoon, ACA
(65) 6231 5831
winsonphoon@maybank-ke.com.sg
 
Se Tho Mun Yi
(603) 2074 7606
munyi.st@maybank-ib.com

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