FW: RHB FIC Credit Markets Update - 10/1/18

 

 

10 January 2018

Credit Markets Update

           

MGS Bear Steepened; BoJ Surprises With Slower QQE Pace.

MYR Credit Market:

¨      MYR well supported. Amid the rally in the USD and the rise in global yields led by the fall in the USTs, the MGS yield curve bear steepened. The 3y MGS was well supported as it saw yields rally -3.4bps while the 10y MGS fell +2.5bps to 3.87%. The 30y MGS weakened even further, +3.6bps to 4.85%. The MYR drew back above the 4.00 handle to close at 4.0095/USD (-0.29%). Brent crude prices continued to thread upwards as it closed at USD68.82bbl (+1.53%).

¨      Govvie trading saw MYR3.1bn recorded compared to MYR3.8bn the previous day. GIIs in the long end saw continued strong trades as the 7y, 10y, and 15y benchmarks GII of GII 08/24, GII 07/27 and GII 06/33 recorded trades of MYR108m, MYR180m and MYR340m respectively. Yields rose to see the securities close at 4.05% (+1.9bps), 4.16% (+3.4bps) and 4.57% (+2.2bps). The long end of the MGS benchmarks saw the 10y, 15y and 20y benchmarks MGS 11/27. MGS 04/33 and MGS 07/37 trading weaker as MYR135m, MYR314m and MYR129m were respectively dealt. Off benchmarks MGS 08/23 and MGS 09/25 saw increased activity as they were traded mixed closing at 3.79% (+0.6bps) and 3.94% (-1.2bps) respectively on trades of MYR132m and MYR167m.  

¨      Corporate bonds/sukuks saw a pickup in trade as MYR613m changed hands. Short dated Cagamas papers were once more in the fore with CAGAMAS 09/20 recording MYR280m trades at 4.09% (-1.3bps). Other notable short dated trades were the CIMBTHAI subdebt callable 07/19 and newly minted SEGI ASTANA 20s which saw MYR65m and MYR25m change hands at 4.85%(-3.7bps) and 4.70% (-20.2bps). Over in the longer end, MYR40m SEB 07/29 was traded at 4.96 (+4bps) while WESTPORTS 12/21 trading for the first time since being issued in Dec 17, saw MYR50m change hands at 4.49% (-4.0bps)

¨      RAM Ratings affirmed its AAA/Sta ratings on Digi Telecommunications Sdn Bhd. The reaffirmation of the issue ratings reflects Digi's well-established position in the mobile industry, underpinned by its sturdy performance and financial profile. In light of Digi's close relationship with its indirect shareholder Telenor ASA, Digi enjoys economies of scale through coordinated corporate procurement and transfer of technical know-how. Support from Telenor is deemed highly likely and is anticipated to be readily extended if and when required. Digi's debt is expected to peak at MYR3.2bn over the next three (3) years, weakening gearing ratio to 6.08x from 5.00x currently. FFO-debt coverage is expected to hover 0.67-0.69x.

APAC USD Credit Market:

¨      US Treasuries bear flattened as BoJ cut bond purchases. Investors were surprised by the announcement made by BoJ to reduce the purchases of long-dated JGBs. The USTs resumed its flattening on the back of upsurge in bonds supply from the recent sell-offs in addition to the coming USTs auction of new 3y, 10y and 30y papers this week amounting approximately USD56bn. The longer tenure benchmark bonds recorded the most fall with yields on the 10y UST surging past the 2.50% level to close at 2.55% (+7.3bps), while the 30y UST hit the 2.90% (+8.39bps). The 2y UST also weakened to end higher at 1.97% (+1bp) while the 5y UST extended losses as yields lifted to 2.33% (+4.37bps). The DXY rose for the third consecutive days as it advanced to 92.5, closing +0.18% higher. Elsewhere, S&P has revised US growth outlook from 2.6% to 2.8% in 2018, citing the revamped tax code should help to boost GDP in the short to medium term. Meanwhile, North Korea and South Korea held their inter-Korean military talks, first in over two years, in an attempt to denuclearise the Korean peninsula given the current development of North Korea's nuclear programme. North Korea has planned to send a delegation to the Winter Olympics that will be held in South Korea next month.

¨      Singapore corporate led the rally in AxJ IG CDS. The iTraxx AxJ IG spreads fell further as it reached to new lows of 59.9bps (-1.6bps). Over in CDS space, Singapore Telecommunications Ltd. saw the most reduction in levels of approximately -5.3bps, leading the rally for the day. Spreads on Fis Oversea-Chinese Banking Corp. Ltd. and ICICI Bank Ltd. shed about -2.7bps and -2.6bps respectively. Other notable entities include Swire Pacific Ltd and CapitaLand Ltd. with spreads falling nearly -2.9bps and -2.5bps. Continuing from previous day rally in the sovereign space, Malaysia saw spreads tighten -2.2bps in estimation, followed by Philippines, South Korea and China with levels compressing ranging between -1.7bps and -1.8bps. Leading the widening, on the other hand, was State Bank of India/London as CDS levels rose approximately +1bp. This was followed by GS Caltex Corp which recorded spreads increase about +0.9bps while levels on Hutchinson Whampoa Ltd  edged a tad higher of nearly +0.6bps.

¨      Moody's assigns Baa1/Sta to Leader Goal International Limited's senior perpetual securities guaranteed by Power Construction Corporation of China. The Baa1 rating reflects the guarantee from PowerChina, as well as the fact that the securities will rank pari passu with all other senior unsecured obligations of PowerChina. Moody's considers the proposed senior perpetual securities as 100% debt-like despite the securities demonstrating certain hybrid-like features, due to the high step-up cost of 500bps after the first call date. Moody's assigns Ba1/Sta to Guangxi Financial Investment Group (GXFIG). It is a conglomerate andits subsidiaries are engaged in microfinance, SME credit guarantee, distressed asset management, property and casualty insurance, leasing, credit re-guarantee, and private equity investment. This rating is based on expectations of strong support from the Guangxi provincial government, as it is 100% owned by the Guangxi State-owned Assets Supervision and Administration Commission (SASAC). GXFIG total assets grew 11.5% to RMB70.8bn 6m 17 (23.8% 2016) and its leverage rose to 7.8x Jun 17 from 4.2x 2014. NPL ratio for the company microfinance business increased to 2.3% Jun 17 from 0.5% 2013.  GXFIG's major businesses and operations concentrate in Guangxi, making it vulnerable to regional economic uncertainties and consequent volatility in earnings and asset quality.

 

 

 

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