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

 

 

Credit Markets Update

           

Malaysia 1Q GDP 5.4%; TELEKOM issues MYR250m.

MYR Credit Market:

¨      UST yields continue their ascent pressuring yields for global govvies. As the UST yields continued their ascent, global govvies continued to weaken.  Meanwhile MGS yields edged up as the 3y MGS to 3.73% (+1.9bps) while the 10y MGS traded 4.21% (+1.3bps). The 30y MGS saw yields rise +1.3bps to 4.93%. The MYR was largely unchanged vs the greenback to close the day at 3.9695/USD (-0.03%).

¨      Trading in govvies saw MYR3.1bn recorded. In the GII space, the 5y benchmark GII 04/22 ended the day at 3.93% (+0.8bps) on trades worth MYR452m while the MGS space saw trades mainly in the 7y and 20y benchmarks MGS 03/25 and MGS 04/37, which saw yields pick up +4.3bps and +5.8bps to close at 4.05% and 4.90% on trades worth MYR190m and MYR112m respectively. Other notable trades include the previous 15y benchmark, the MGS 04/33 which on MYR328m of trades closed at 4.76% (+2.5bps), and off benchmark MGS 09/21, MGS 07/24 and MGS 09/25, which closed at 3.83% (-2.9bps), 4.14% (+1.8bps) and 4.28% (-0.7bps) on trades worth MYR223m, MYR223m and MYR134m.

¨      Corporate trades remained robust recording MY437m trades. Short dates corporate names CAGAMAS 10/18 and CAGAMAS 11/18 recorded trades worth MYR60m and MYR100m respectively to trade weaker at 3.83% (+4bps) and 3.84% (+1.8bps) respectively. Among financial names, SABAH DEV 4.78% 08/19s and SABAH DEV 4.37% 08/19s each on MYR10m trades, were traded mixed at 4.75% (-2.1bps) and 4.75% (+8.4bps), while the callable subdebt of MAYBANK callable 12/18 and MAYBANK callable 12/18 each on MYR10m trades, saw yields edge up between +8.9bps and +11.1bps to 4.32% and 4.49%. In the longer end, JEP 12/28 and JEP 12/32, recorded trades totalling MYR30m as they crossed the day at 5.03% (unchanged) and 5.30% (+3.6bps).                                                                                                                                                                                                                                                                                                                                             

¨      In the primary market, Telekom Malaysia Berhad further tapped its AAA rated MYR3bn IMTN and ICP programme for MYR250m 10y sukuks. The sukuks were issued with profit rates of 4.73%, 52bps over the corresponding benchmark 10y MGS.

¨      In economic news, Malaysia real GDP growth slowed to 5.4% YoY 1Q18 (5.9% 4Q17). This slowdown mainly reflected slower private investment and government consumption while real exports grew at a weaker pace. RHB maintains out growth forecast of 5.2% 2018, slowing from 5.9% reported in 2017. The newly-formed Government’s removal of goods & services tax (GST), is expected  boost  consumer  spending  but  will  likely  widen  the  budget  deficit  from  the  targeted 2.8%  of  GDP  this  year.  It remains uncertain if a fiscal tightening would follow. Malaysia reported a wider current account surplus of MYR15bn 1Q18 (MYR13.9bn 4Q17). This was largely attributed to the wider surplus in the merchandise trade, though the current income account saw a higher deficit from increased repatriation from multinational companies. Meanwhile the financial account saw larger inflow of MYR15.2bn 1Q18 (MYR19.9bn 4Q17). The basic balance recorded a larger surplus of MYR30.2bn 1Q18 (MYR19.9bn 4Q17).

APAC USD Credit Market:

¨      The UST yield curve saw a steepening trend as the 2y UST rallied -2.04bps to close at 2.56% while the longer end saw the 10y and 30y UST yields inch higher +1.48bps and +2.90bps respectively, to end at 3.11% and 3.25%. The USD as seen in DXY continues its strong run to close at 93.47 (+0.08%) overnight. While China’s foreign minister has called for the US to respond calmly to threats by North Korea to pull out of a summit next month, the US President said the Chinese President could be influencing North Korea. Ahead of today’s meeting between China Vice Premier and Donald Trump, China has offered a USD200bn cut in the US trade deficit by increasing imports of American products as China seek to resolve the trade dispute. Brent crude oil touched USD80/bbl after the potential return of the US sanction on Iran before closing slightly lower at USD79.30. In economic news, the weekly jobless claims came out higher; 222k for week ending 22 May against 211k in prior month while continuing claims data fell to 1707k May from revised 1794k in Apr. The Philadelphia Fed Business Outlook jumped to 34.4 May (Apr: 23.2), well above consensus of 21.0.

¨      The iTraxx AxJ credit spread increased +0.2bps to 75.92bps. The sovereign of Indonesia, Philippines and Malaysia CDS on the other hand pushed higher about +1.33bps, +1.02bps and +0.60bps respectively. Reliance Industries Ltd saw spread higher +1.85bps while Indian financial institutions Bank of India and ICICI Bank Ltd both saw CDS spreads increased +1.16bps and +1.10bps.  Conversely, Sun Hung Kai Properties Ltd, Hongkong Land Co Ltd, CNOOC Ltd, China Development Bank and Export-Import Bank of China all saw spreads tighten between -1.3bps and -2.5bps.

¨      Over in ratings, Fitch downgraded eHi Car Services Limited to B+/Sta from BB-/Sta. The downgrade reflects leverage that was higher than Fitch’s expectations at end 2017 as a result of ongoing capex for vehicle fleet expansion with FFO adjusted net leverage rising to 4.3x from 3.4x a year before. eHi also announced a potential privatisation plan which may take place around 3Q18, which based on Fitch’s estimates would lead to higher net leverage.

¨      Moody’s revised Daegu Bank Ltd’s rating outlook to A2/Neg from A2/Sta. The rating action concluded Moody’s review for downgrade started on Daegu Bank on 10 Nov 17 which was initiated following DGB Financial Group’s announcement on 8 Nov of its decision to acquire an 85.32% equity stake in Hi Asset Investment and Securities from Hyundai Mipo Shipyard for KRW450bn; DGB FG is the parent holding company of Daegu Bank.