FW: Credit Market Watch: Summary for week ending 8-Jun

 

 

Dear all,

Credit Market Watch: Summary for week ending 8-Jun

·        MYR Credit:
Ø        MGS yields rose 2-6bps WoW as the appetite for risk taking remain lukewarm amid policy uncertainty post-GE14 and the foreign holdings data released last week showed a larger-than-expected selloffs by foreign funds in May totalling MYR12.9b. Corporate bond segment had mixed performance, as yields were generally up by 1-4bps at the short end but down 1-2bps at the long end WoW. PDS secondary volume picked up to MYR1.9b.
Ø        Banking: Loan growth picked up pace to 4.8% YoY in April (Mar: 4.4%) as lending to households and corporates grew at faster rates. Loan applications and approvals, however, continued to languish near recent lows. Latest government policies, such as the removal of GST and tax-free period, suggest continued household loan demand, but there is uncertainty on the sustainability of corporate lending as major infrastructure projects are reviewed or scrapped. Our banking analyst maintains full-year loan growth forecast at 4.5% for now. The banking system remains healthy with deposits growing at 5.4%, better interest spreads, steady GIL ratio and reasonably strong capital positions.
Ø        Relative value: Alpha Circle 2021 last dealt at 5.40% or 67bps wide from our fitted AA3/AA- line. Despite its wide spreads, the risk-reward proposition may not be sufficiently attractive. Alpha Circle may be exposed to policy risks as the new government intends to reduce the country’s reliance on foreign labour, even ending a rehiring exercise of undocumented foreign workersby end-June. This doesn’t bode well for Alpha Circle which derives income from foreign worker registrations.
·        Asian Credit:
Ø        UST curve rose 3-4bps along the 2y10y WoW in a near parallel upward shift. 10y yield increased by 4bps to 2.95% ahead of the US FOMC meeting outcome which will be available on 14 June (Asian time). A 25bps hike in Fed Funds Rate (FFR) is already fully priced in by the market. The key question on rates is whether the FOMC members will raise their forward guidance to a total of four hikes (from three) in 2018 or increase the terminal rate last assessed at 3.25-3.50% amid tightening labour market condition.
Ø        In Asian USD credit, pipeline deals in the primary market remain sluggish, especially for non-IG names amid fears that defaults in China may continue to rise. Spreads generally widened WoW, with JACI composite +2bps, JACI IG +2bps and there is still no respite in the HY space with JACI HY spread +2bps WoW, near the widest end since 2017. In sovereign space, yields were about 3-5bps higher for CHINA, KOREA and PHLIIP while INDON and MALAYS underperformed with yields 5-10bps higher WoW.
Ø        Rating change: RHB Bank’s deposit and senior unsecure ratings are reaffirmed by Moody’s at A3/stable but its baseline credit assessment is lifted to baa2 from baa3, citing good records in solvency and liquidity metrics. The bank’s gross NPL ratio, fully-loaded common equity tier-1 (CET1) ratio and liquidity coverage ratio (LCR) were stable at 2.3%, 13.5% and 116% respectively at end-Mar 2018. RHB Bank’s A3 rating includes a 2-notch uplift on very high likelihood of government support as assessed by Moody’s. This compares with S&P which assesses the same standalone rating at bbb but only 1-notch uplift to BBB+ for the bank’s rating on government support due to its moderate systemic importance.
·        CDS: EM Asia 5y CDS spreads widened for the second week in a row, led by Malaysia and Indonesia +7bps each, followed by Philippines +2bps, China +1bp while Korea and Thailand were unchanged WoW.



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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