FW: RHB FIC Credit Markets Update - 15/5/18

 

 

Credit Markets Update

           

GII 08/25 BTC 3.40x; 10y UST Hovers at 3.0% Once More.

MYR Credit Market:

¨      7y GII 08/25 reissued at 4.202%. The first day of trading following the long break coinciding with the elections in Malaysia saw markets end mixed. The MGS yield curve saw the 3y MGS yields fall -2.9bps to end the day at 3.66% while the 10y MGS saw yields rise to 4.15% (+1.3bps). The 30y MGS on the other hand closed at 4.92% (-0.4bps). The reissuance of the 7y GII 08/25 saw a tender with BTC of 3.40x, the strongest demand for a govvie auction for the year. The MYR3.0bn of securities tendered saw an average yield of 4.202%, compared to the last traded yield of 4.13% a week before. The 7 year GII traded tighter post auction supported by robust onshore demand. While EM Asian currencies continued to trade mixed against the USD, the MYR closed the day largely unchanged at 3.9505/USD (-0.02%).

¨      Trading in govvies jumped to MYR5.3bn supported by reopening of 7y GII. Top trades largely occurred within the benchmark MGS/GII securities. The reopening of 7y GII attracted healthy demand after seeing MYR714m traded to close higher +2.4bps at 4.15%. In the longer end, the benchmark 10y MGS 11/27 remained unchanged at 4.16% after MYR493m transacted while the benchmarks 3y MGS 11/21 and 5y MGS 03/22, on trades worth MYR443m and MYR144m saw yields picked up +3.9bps and +19.3bps to close at 3.70% and 3.98%. The benchmark 5y GII 04/22 on trades of MYR573m also traded weaker +2.2bps to end at 3.91%. Other notable trades include off benchmarks MGS 11/19 and MGS 11/33, on trades worth MYR535m and MYR411m, crossed the day at 3.72% (+10.7bps) and 4.57% (-1.7bps). Meanwhile, off benchmark MGS 09/18, MGS 04/23 and MGS 10/20 were traded mixed at 3.51% (+7.8bps), 3.81% (+2.3bps) and 3.66% (-9.6bps) on trades worth MYR343m, MYR320m and MYR140m.

¨      Investors remained on the sidelines as corporate bonds/sukuks trading activity was quite with trading volume of just under MYR93m. Leading the trades were MBSB (formerly known as Asian Finance Bank) collectively accounted for MYR40m which saw ASIANFIN 12/19, ASIANFIN 05/19 and ASIANFIN 12/21 closed at 4.65%, 4.55% (+1.8bps) and 4.90% respectively. Short-dated MCIL 02/19 on trades of MYR30m saw yield pushed higher +18.4bps to 4.79% against last traded in Feb 18 while YTLPOWER 08/18 also saw yield rose +11.0bps to close at 4.31%. Meanwhile, GENM CAPITAL 03/22 and UMWH Pnc10 on trades worth MYR5m each, ended mixed at 4.81% (+11bps) and 6.15% (-0.1bps) respectively.

¨      In economic news, Malaysia’s IPI grew at 3.1% YoY Mar 18 (3.0% Feb 18). Stronger electricity and mining output supported IPI growth, though a slowdown in manufacturing production offset those gains. For the quarter, the IPI grew 3.9% YoY (3.5% 4Q17).

¨      Over in ratings, MARC affirms Projek Lebuhraya Usahasama Berhad (PLUS) at AAAIS/Sta. The rating affirmation incorporates two-notch rating uplift driven by MARC’s support assumption from the Malaysian government based on the interdependence between default events for PLUS’s sukuk and MYR11bn GG sukuk maturing after the rated programme.  MARC also considers PLUS’s status as status as an indirectly-government owned entity.  For 9M17, traffic volume on MSSL grew 6.9% backed by ongoing developments surrounding Nusajaya and improved connectivity to west Johor Bahru, while NSECL grew 5.2% YoY. In the same period, PLUS’ operational revenue fell to MYR2.79bn due to lower government compensation which consequently resulted in net CFO to decline 0.8% YoY to MYR1.97bn. CFO interest coverage stood at 1.29x during the same period. PLUS’ DE ratio stood higher at 74.9x against 26.1x in the previous corresponding period. Based on MARC’s sensitivity analysis, the concessionaire is susceptibility to traffic growth decline on NSE compared to deferrals in toll rate increases and the absence of government compensation throughout the sukuk tenure. MARC also opines that the recent toll abolishment at Batu Tiga-Sungai Rasau and Bukit Kayu Hitam tolls are unlikely to impact PLUS as both these toll plazas only contributed about 2.73% to PLUS’ tolling revenue, before taking into account the corresponding cost savings from the elimination of operations and maintenance.

APAC USD Credit Market:

¨      Risk markets bouyed ahead of US-China trade negotiations. Risk markets rallied, leading to a weakening in the USTs. The 2y and 10y UST weakened to 2.55% (+1.3bps) and 3.00% (+3.1bps) respectively while the 30y UST weakened to 3.14% (+3.1bps). Francois Villeroy de Galhau, a member of the ECB governing council, in an interview expressed the opinion that bond purchases by ECB should end by 2018 leading to interest rate hikes in 2019. This led to a spike in the EUR and contributed to a rise in global yields. Expectations are positive ahead of US-China trade negotiations with upbeat comments by the US Commerce Secretary Wilbur Ross, and news that suggests the US President is softening his previous hard stance on China. The US President instructed a stay in the sanctions imposed on Chinese company ZTE as part of a larger trade deal currently discussed with Chinese President Xi. The USD as seen by the DXY Index remained largely unchanged at 92.61 (+0.05%) overnight. Markets will watch for the US retail sales and manufacturing index numbers, as Europe is expected to report on its GDP out later today.

¨      The iTraxx AxJ credit spread edged down -1.46bps to 74.10bps. Leading the rally was the sovereign of Malaysia which rallied close to -3.1bps. This was followed by Malaysian corporates Telekom Malaysia Bhd and Petroliam Nasional Bhd which both saw CDS spreads tighten about -2.4bps and -2.0bps respectively. Other corporates such as Industrial & Commercial Bank of China Ltd, Reliance Industries Ltd, and Hutchison Whampoa Ltd between -0.8bps to -2.0bps. On the other hand, Singapore Telecommunications Ltd saw CDS spreads increase +2.2bps, while Swire Pacific Ltd, Hongkong Land Co Ltd, and Sun Hung Kai Properties Ltd all saw spreads widen between +1.5bps and +1.9bps.

¨      Over in ratings, Moody’s assigns A1/Sta to Shinhan Financial Group Co., Ltd. The rating agency assigns this rating with a multi notch uplift to reflect its assessment of a very high probability of support from the government of Korea in a situation of stress as Shinhan FG and its subsidiary banks are designated as domestic systemically important banks. The rating also reflects Shinhan FGs financial profile, well diversified portfolio of subsidiaries and surplus capital in its key subsidiaries. In addition, Moody’s assigns A3/Sta to Shinhan Investment Corp, a subsidiary of Shinhan Financial Group Co., Ltd. The rating reflects uplifts by Moody’s from affiliate support expected from its parent, as well as from government support. The ratings also reflect Moody’s view that Shinhan Investment has a moderate risk appetite with low exposure to off-balance sheet items, modest but stable profitability, modest liquidity, and weak funding profile.

¨      Moody’s revised Ascendas Real Estate Investment Trust’s (A-REIT) rating outlook to A3/Pos from A3/Sta on the back of strengthened business profile as well as the sustained improvement in its credit metrics. A-REIT’s investment portfolio rose to SGD10.1bn as at end-Mar 18 from SGD8.1bn two (2) yrs ago, contributed 85% of its total portfolio valuation with the remainder coming from Australia assets. Its adjusted net debt/EBITDA improved to 6.2x from 7.7x while adjusted debt/total deposited assets fell to 36.5% from 40%. Moody’s also incorporated in the rating, A-REIT’s ability to tap the capital markets and its proactive approach towards capital management. Moderating rating factors include A-REIT’s reliance on short-term revolving credit facilities, softer operating environment in the Singapore industrial segments and the inherent exposure to liquidity risks that all Singapore REIT’s face.