FW: RHB FIC Credit Markets Update - 9/1/18

 

 

 

9 January 2018

Credit Markets Update

           

Foreign Flows Into MYR Govvies Saw Positive Inflow in Dec 17; MYR Remains Well Supported.

MYR Credit Market:

¨      MYR well supported. MYR remains well supported as it closed unchanged at 3.9980/USD. Brent crude continued to rally and closed at USD67.78/bbl (+0.24%) on news of a small decrease in US drilling rigs. The MGS yield curve continue to be supported especially in the 10y MGS. The 3y MGS saw yields drop -0.3bps to 3.34% whereas the 10y MGS saw yields fall -5.6bps to 4.37%. The 15y and 20y MGS, on the other hand, weakened +0.5bps and +1.5bps respectively to 4.37% and 4.58%.

¨      Govvie trading were strong as just under MYR3.8bn changed hands. GIIs remain heavily traded, this time on the longer end as the 7y, 10y and 15y benchmark GII saw trades of MYR130m, MYR571m and MYR156m respectively. The GII 08/24, GII 07/27 and GII 06/33 saw a rally in yields to settle at 4.03% (-1.4bps), 4.12% (-0.7bps) and 4.55% (-3.6bps). The 7y, 10y and 15y benchmark MGS also saw interest as MYR223m, MYR161m and MYR151m respectively were traded at 3.82% (-1.4bps), 3.84% (-5.6bps) and 4.37% (+0.5bps). Off benchmark MGS 07/24 and MGS 09/25 saw trades of MYR154m and MYR145m which closed at 3.82% and 3.95% following a rally of -3.9bps and -3.8bps respectively.

¨      Corporate bonds/sukuks saw trades remain strong albeit weaker compared to last week, recording MYR301m. Short dated names such as CAGAMAS 08/20, PKNS 10/18 and PKNS 05/20 saw MYR 50m, MYR10m and MYR20m each traded. The securities rallied -50.5bps, -1.4bps and -0.5bps respectively from their last traded yields to close at 3.67%, 4.37% and 4.70%. In the longer end, PUTRAJAYA 09/23 saw yields rise +2.8bps to 4.41%, whereas TELEKOM 09/27 and TELEKOM 03/24 each saw yields rise +19.7bps and +7.2bps respectively to 4.56% and 4.37%.

¨      Govvies see inflow of MYR4.69bn. Foreign ownership of Malaysian bonds rose MYR2.65bn in the month of Dec-17. This would imply a total outflow of -MYR7.8bn for the year 2017 (-MYR7.08bn outflows of government debt 2017). Government debt saw a stronger inflow of MYR4.69bn in Dec. This brings the foreign ownership of MGS up to 45.1% from 44.3% and the GII to 6.9% from 6.8%. Total foreign ownership in government debt now holds at 28.9% from 28.4% previously

¨      Over in ratings, RAM Ratings has lifted the negative rating watch on Premium Commerce Berhad's (PCB)'s affirming Class A and Class B Notes to AAA/Sta and AA2/Sta respectively. This follows bondholders' approval of PCB's proposed resolution on 28^th Dec 17. PCB had proposed to extend the maturities of 2 of the 5 series under its Class A Notes, to address the increased liquidity risk arising from the marked deviation in the underlying portfolio's default and prepayment performance relative to its earlier securitised portfolios. The resolution effectively alleviates the liquidity concerns of the rating agency, assuming higher stressed default and lower prepayment scenarios. The rating also reflects available credit enhancements such as the overcollateralization ratios of 8.93% and 6.38% respectively for Class A and Class B Notes (Aug-17).

¨      RAM Ratings affirmed its AAA/Sta ratings on Maybank Islamic Berhad. The affirmation is premised on the bank's strategic role as the Islamic banking arm of Malayan Banking Berhad. Maybank Islamic is the world's 5^th largest Islamic bank and is the biggest domestic Shariah lender, and commands 83% of the industry's investment accounts. Gross impaired-financing (GIF) grew to 1.1% Sep 17 (1.0% Dec 16), though still healthy, asset quality remained pressured by corporate books, particularly from the oil and gas as well as commodities sectors. GIF coverage ratio stands at 123.6% Sep 17.  The bank's funding profile remains relatively weak, with financing-to-debt ratio at 105.5% Sep-17. Adjusting for placements by its parent, it would come down to 91.9%. Liquidity coverage still remains healthy at above 100% 3Q 17.

¨      RAM Ratings affirmed Bank Pembangunan Malaysia Berhad (BPMB) at AAA/Sta. This rating remains based on the expectation of solid support by the Government of Malaysia, given BPMB's strategic role in fulfilling the government's major socioeconomic development goals in the country. BPMB's financing portfolio inherently carries a relatively higher credit risk compared to that taken on by commercial banks, although about 75% of gross financing are extended to fund government-related infrastructure projects. BPMB's gross impaired-loan ratio stood at a high 15.7% Jun 17 (11.1% Dec-15), mainly due to exposures from the technology, maritime and O&G sectors.

APAC USD Credit Market:

¨      US Treasuries flat as focus remained on CPI data later this week. While the minutes release of the Dec 17 FOMC meeting revealed policy outlook remained unchanged for the coming year, Atlanta Fed President Bostic, who will be an FOMC voter this year, gave his view yesterday with a more dovish stance as he cited fewer rate hikes in 2018 would be more reasonable. Subsequent to that, San Francisco Fed President Williams, who will also be an FOMC voting member this year, opined the Fed should consider adopting a price-level target as he warned the difficulty to lower interest rates in the event of economic recession. Meanwhile, the USTs recorded a quiet trading session yesterday as investors were mostly seen on the sideline. CPI report, to be released later this week, will be a key watch as inflation is expected to slow to 2.1% YoY Dec 17. The USTs remained firm overnight as the 2y UST and 10y UST held at 1.96% and 2.48% respectively with the 2s10s spreads unchanged at 52bps. Market participants will be keeping a close tab on new supply as the U.S. Treasury Department prepares to auction new 3y, 10y and 30y bonds occurring in the mid-week. The USD regained momentum following the recent hawkish statements by Fed members Mester and WIlliams with the current rate hikes target remained firmly on track as the DXY rose +0.44%, closing at 92.4. Elsewhere, President Trump is reportedly close to making the decision on the next Fed vice president after ruling out Clarida for Fischer's replacement who retired in October last year.

¨      South Korea financials led the rally in AxJ IG CDS. The iTraxx AxJ IG spreads continued to grind down as it fell to 61.5bps (-2.1bps). South Korea players continue to lead the tightening in the CDS space with Fis Woori Bank recorded a fall in levels of approximately -4.7bps while Kookmin Bank, Industrial bank of Korea, Korea Development Bank and Export-Import Bank of Korea shed between -2.8bps and -3bps. Corporates Hyundai Motor Co., Korea Electric Power Corp. and KT Corp. each saw spreads compressing about -3.6bps, -3.2bps and -3.1bps respectively.  Over in sovereign space, South Korea recorded the most reduction in CDS levels of nearly -2.8bps, followed by China and Indonesia as both saw a similar decline of close to -2.6bps. Meanwhile, CDS levels for sovereigns Philippines and Malaysia fell approximately -2.2bps and -2bps respectively. Other notable entity was Bank of India with spreads reduction of nearly -2.9bps. PCCW-HKT Telephone Ltd, on the other hand, took a breather as spreads edged slightly a tad higher of about +0.2bps after leading the rally in the previous day.

 

 

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