FW: Credit Market Watch: Summary for week ending 4-May

 

Credit Market Watch: Summary for week ending 4-May

·        MYR Credit:
Ø        MGS yields retraced some of previous week’s climb on the back of domestic buying flows. Yields lowered along the 7y15y part of the curve, with the 10y yield down 4bps WoW, and the new 15.5y MGS auction garnered solid bids. Corporate bond yields followed suit to lower 1-3bps WoW, while trading volume was smaller at MYR1.3b.
Ø        Macro: Net external demand is expected to be accretive to GDP growth in 1Q18 as trade surplus jumped 77% YoY to MYR33.4b (4Q17: -1.1%; MYR27.6b). This is despite the deceleration in exports growth to 5.8% in 1Q18 from 12.4% the previous quarter as imports contracted by -0.8% (4Q17: 14.4%).
Ø        Banking: Loans increased by 4.4% YoY in March (Feb: 4.5%) amid steady household loan growth (5.6%) while corporate loans slipped to 2.9% (3.2% in Feb), mainly due to tepid lending for commercial properties and working capital. Total credit growth, which include bond issuances, was 4.4% (Feb: 5.2%). Loan applications and approvals are showing some early signs of slowing down with contractions in residential mortgages, auto, commercial properties and working capital loans on 3-month moving average basis in March. Our banking analyst maintains a 4.5% 2018 loan growth estimate for now and will closely monitor the trend in loan applications and approvals. Deposits growth picked up pace to 4.9% in March (Feb: 3.9%), and domestic banks’ capitalization remain adequate with CET1 and total capital ratios of 13.2% and 17.5% respectively.
Ø        Relative value: AA1-rated Sarawak Energy 7/29 last dealt at 5.04%, or 6bps above our fitted AA1/AA+ line, has value relative to Anih 11/26 which dealt at 4.84% and is rated one notch lower. Sarawak Energy benefits from a very strong likelihood of support from the Sarawak state government as well as the federal government. QSP 4/33 appear to offer pick up trading at 5.85%, which is 51bps above the fitted AA3/AA- line, but we are mindful of its construction delays.
·        Asian Credit:
Ø        UST curve flattened a tad WoW with 2y yield up 1bp while the 10y edged 1bp lower to 2.95%. The US labour market report released last Friday was overall a miss. Nonfarm payrolls in April grew at a below-consensus 164K (Survey: 193K) while hourly earnings growth softened to a 2.6% YoY (Survey: 2.7%, Prior: 2.7%), although unemployment rate declined to 3.9% (Prior: 4.1%). The data disappointment initially prompted a rally in 10y UST toward 2.91% but was quickly reversed.  
Ø        In Asian USD credit, sentiment remained lacklustre and spreads were still on a widening bias, with JACI composite +9bps, JACI IG +6bps and JACI HY +21bps WoW. Real estate and sovereign sectors were among the underperformers. In the sovereign space, INDON and INDOIS yields were roughly 10-15bps higher, PHILIP and MALAYS yields about 2-7bps higher, but CHINA and KOREA outperformed and were stronger by about 1-5bps WoW.
Ø        Rating changes: MNC Investama was downgraded to D from CC by S&P, following the debt exchange for its existing USD365m 5.875% senior secured notes due to mature on 16 May 2018. According to the agency, these notes are separately exchanged for new senior unsecured plus cash, subordinated debts and some remain outstanding because of note holders did not consent to the exchange. The agency views the debt exchange seemingly a default, due to the subordination and extension of maturity.
·        CDS: EM Asia CDS spreads were broadly wider, led by Indonesia +12bps, followed by Malaysia and Philippines +6bps, China +3bps and Thailand +1bp while Korea tightened by 3bps WoW.


Click link below for report:
Credit Market Watch


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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