FW: Credit Market Watch: Summary for week ending 1-Jun

 

Credit Market Watch: Summary for week ending 1-Jun

·        MYR Credit:
Ø        The MGS yield curve bull-steepened along the 5y30y part of the curve, lowering 4-7bps WoW on the back of improved appetite for bonds regionally. Corporate bond yields followed suit and declined 1-4bps WoW, but trading volume was a tad thin with just MYR0.8b.
Ø        Toll road rating update: On 30th May, MARC placed all of its toll road ratings on “developing watch” pending clarity on the government’s plan regarding toll road charges. The list of affected ratings are in a table on page 2. The agency cites that the available options to the government include early termination and renegotiation of the concessions. Similarly on 18th May, RAM made an announcement that toll-road bonds under its rating portfolio to be affected by PH government’s proposal to abolish toll but is unable to determine the actual impact in the absence of further details.
Ø        Rating changes: Murud Capital’s AA rating was placed on negative watch by MARC, citing possible multi-notch downgrade due to risk of weaker income going forward after the abolishment of SPAD, which accounts for 13.6% and 14.7% of Platinum Sentral’s NLA and yearly revenue. While Platinum Sentral may claim remaining rental charges in the event of early lease termination, finding replacement tenants may prove challenging because of oversupply.
Ø        Relative value: UEM Sunrise 5/23 last traded at 4.96%, which is 16bps above our fitted AA3/AA- line. Market appears to have turned cautious on the name after the KL-SG HSR was scrapped. The company opines Gerbang Nusajaya development will not be severely affected in the medium term as the station and transit-oriented development were longer term plans (2026 and beyond). Near term, its projects in the Klang Valley and Australia should continue to support the credit profile.
·        Asian Credit:
Ø        Spooked by volatility from Italy political crisis last week, the UST curve bull-flattened along the 2y10y. The 10y yield dropped 3bps to 2.90% while the 2y yield was unchanged. The US labour market continued to show strength in May with net additions of 223K (Bloomberg Survey: 190K) in nonfarm payrolls, unemployment rate declining to 3.8% which is the lowest since Apr 2000 while the average hourly earnings accelerated slightly to 2.7% YoY (Prior: 2.6% YoY). UST curve continues to flatten and the 2y10y spread may breach below 40bps after the widely anticipated 25bps increase in Fed Funds Rate at the FOMC meeting in June.
Ø        In Asian USD credit, lacklustre sentiment and the risk of rising defaults, especially the negative headline news arising from the default by China Energy Reserve & Chemicals Group Co, has weighed on the markets. Spreads widened WoW, with JACI composite +9bps, JACI IG +5bps and the HY space underperformed with JACI HY widening by 25bps WoW.
·        CDS: EM Asia 5y CDS spreads were generally wider, led by Malaysia +7bps, followed by Indonesia +4bps, Philippines +3bps and China +1bp while Thailand was unchanged and Korea 1bp tighter.


Thank you.



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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