Dear all,
Credit Market Watch: Summary for week ending 25-May
· MYR Credit:
Ø MGS yield curve steepened with the 5y yield down 1bp and the 10y yield up 5bps WoW. Foreign investors shortened duration amid weak EM bond market sentiment, while local buying sentiment was tempered by domestic government debt headlines. Corporate bonds traded sideways in yields with MYR1.7b volume traded.
Ø PASB raised MYR2.1b via a dual-tranche offering of MYR1.12b and private placement of MYR135m, MYR350m and MYR500m of 3y, 4y and 6y Islamic notes. The dual-tranche offering comprised 5y (MYR715m) and 7y (MYR400m) notes sold at final price of 4.41% and 4.56% respectively, which at the time offered slight concession to the GG curve.
Ø Macro: Headline and core inflation stayed below the 2%-level in April for the 3rd consecutive month, at 1.4% and 1.5% YoY respectively (Mar: 1.3%; 1.7%). With YTD inflation at just 1.7% and new Pakatan Harapan (PH) government’s policies that are expected to limit inflation, our economic research cut their inflation forecast to a range of 1.5%-2.0% (previously 2.3%). With inflation slowing, we expect OPR to remain unchanged at 3.25% for the rest of the year.
Ø Relative value: Although CJ Capital 7/20 dealt at 4.57%, or 19bps wider than our fitted AAA line, we would be somewhat cautious of the credit if new PH state government in Johor seeks to review expenditures. CJ Capital’s sole income source is annuity payments from the Johor state government for the development and maintenance of Kota Iskandar.
· Asian Credit:
Ø UST yield curve bull-flattened along the 2y10y WoW with the 2y yield down 7bps and the 10y yield dropping 12bps WoW to 2.93%, erasing previous week’s losses. The rebound in UST came on the back of some weaker manufacturing data and renewed trade concerns as Trump’s reiterated his consideration of raising auto tariffs.
Ø On the back of the rally in UST, Asian USD credit spreads widened with JACI composite, JACI IG and JACI HY up by 3-6bps WoW. Sovereign bonds also strengthened, with INDON and MALAYS yields lower by about 10-17bps, while KOREA, CHINA and PHILIP yields generally declined 2-14bps WoW.
Ø Rating change: Shandong SNTON Group Co Ltd’s (Snton) rating was lowered to BB from BB+ by Fitch, citing higher leverage which is likely to remain elevated in the medium term. Snton’s FFO adjusted net leverage rose to 3.9% at end-2017 as a result of higher capex and working capital, and the agency expects it to stay above the negative rating threshold of 2.5x until 2020, prompting the rating downgrade action.
· CDS: Tighter EM Asia 5y CDS spreads, led by Indonesia -6bps, China and Philippines -2bps each and Malaysia -1bp, while Thailand remained flat and Korea underperformed rising 3bps WoW.
Regards,
Winson Phoon, ACA
(65) 6231 5831
Se Tho Mun Yi
(603) 2074 7606
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