Credit Markets Update

Fixed Income & Currency Research

19
19 May
May 2017
2017
,

MGS Trades Falls; Markets Eye Malaysia 1Q17 GDP

MYR Credit Market: Chart 1: MGS Curves

MYR and MGS continue to fall. Following the weakness yesterday the MYR
%
4.5
weakened -0.10% to 4.3280/USD. The MGS curves continued to weaken, as 4.3
the Malaysian govvies yield spiked across the board. The 3y MGS yields 4.1
3.9
spiked 2.7bps to 3.33% whereas the 10y MGS rose 1.2bps to 3.94%. This
3.7
followed the risk-off sentiment globally continuing to pressure Asian 3.5
currencies and supporting safe haven assets. The recent rally in risk assets in 3.3
the US overnight following the effects of better economic data, rally in oil 3.1
2.9
prices, and as concerns on the administration in the US was allayed slightly,
2.7
which should halt the pressures on EM yield curves. Feb-17 Mar-17 Apr-17 May-17
3y MGS 5y MGS
Govvie trades fall while corporate trading improves. Trading of Malaysian 7y MGS 10Y MGS
Source: Bloomberg, BNM, RHBFIC
govvies fell again to the lows of MYR1.7bn only changing hands. This
following, the large issuance of CIMB Bank bonds overnight and the recent
take-up of the 10.5y benchmark MGS bonds issued. Trading in the corporate Chart 2: USDMYR and 10Y MGS
bond space however remained robust with a strong MYR618m changing %
4.30
hands. Banking names saw increased interest as CIMB T2 21s callable bonds 4.25 4.45

falling to 5.28% (+23.7 bps), AFFINBANKs subdebt 22s callable bonds 4.20
4.40
4.15
unchanged at 5.11% (-0.7bps) and PUBLIC subdebt 10/18 callable bonds 4.10
4.35
rallying to 4.34% (-4.3bps). 4.05
4.00

4.30
GDP and CAB will be closely watched. Market will be focused on the 3.95
3.90 4.25
coming 1Q17 GDP numbers to be published later today. Numbers are
3.85
expected to be stronger in light of the rally in regional export numbers in the 3.80 4.20
Feb-17 Mar-17 Apr-17 May-17
quarter. The current account balance for 1Q17 will also be watched to
USDMYR (RHS) 10Y MGS
appreciate the effect of the recent FX administrative measures introduced by
BNM in December 2016. Source: Bloomberg, BNM, RHBFIC

Table 1: Index Movements

Indices 18-May 17-May Chg (bps)
iTraxx AxJ 5y IG 94.0 90.6 3.3
AxJ IG Spread (bps) 180.4 175.0 5.4
AxJ HY (%) 6.55 6.55 0.5
SOR 2y (%) 1.34 1.36 -2.3
SOR 5y (%) 1.81 1.85 -4.1
Malaysia 5y CDS 105.2 101.9 3.3
MGS 3y (%) 3.33 3.30 2.7
MGS 5y (%) 3.56 3.56 0.0
MGS 7y (%) 3.81 3.80 0.7
MGS 10y (%) 3.94 3.93 1.2
AAA 5y Spread* (bps) 75.7 76.0 -0.3
AAA 10y Spread* (bps) 80.9 82.2 -1.3
AA 5y Spread* (bps) 112.6 112.9 -0.3
AA 10y Spread* (bps) 114.9 116.2 -1.3
Source: Bloomberg, BNM, RHBFIC *MYR-denominated bonds

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 Credit Markets Update
Fixed Income & Currency Research
19
19 May
May 2017
2017
Table 2: Primary Market

Company Curr Amt (mil) Coupon (%) Maturity Ratings (M/S/F)

China Mengniu Dairy Co Ltd USD 194.8 0.000 05/06/20 NR/NR/NR
Amber Treasure Ventures Ltd USD 500 3.000 25/05/20 Baa2e/NR/NR
Source: Bloomberg, RHBFIC

Table 3: Rating Actions

Company Agency Type Current Previous Industry

Multi Asset Class Owners &
China Evergrande Group S&P LT B/Sta B-/Neg
Developers
Source: Bloomberg, RHBFIC

APAC USD Credit Market: Chart 3: UST Curves

UST yields traded higher as risk-off sentiment receded; 2y rose 2.2bps to
%

1.27%, while 10y note remained largely unchanged at 2.23% (+0.5bps) buoyed 2.6

by the release of better-than-expected economic data initial jobless claims data 2.2
was lower at 232k (consensus: 240k), Philadelphia Fed Business Outlook came
1.8
in at 38.8 (consensus: 18.5). The U.S. Dollar Index advanced to 97.88 (+0.31%).
Separately, Brent price was higher as well, closed at USD52.51/bbl (+0.57%) on 1.4

optimism that OPEC and other big producers will extend production cuts. 1.0

Underperformance in Asian credits amid the US political turmoil. IG credit 0.6

Feb-17 Mar-17 Apr-17 May-17
spreads climbed to 180.4bps (+5.4bps); the HY space stayed firm at 6.55%
2y UST 5y UST 10y UST
(+0.5bps). Elsewhere, the iTraxx AxJ IG widened by 3.3bps to 94.0bps. Banks
Source: Bloomberg, RHBFIC
continued to be the worst performers in the constituent (i.e. IDBI Bank Ltd,
Kookmin Bank and China Development Bank).

Moving on to rating actions, S&P upgraded China Evergrande Groups rating

from B- to B as a result of the companys improved liquidity on the back of better
sales performance. Its EBITDA margin increased to 20.9% in 2016 (18.5% in
2015). Moodys expects the ratio to improve to 23% in the next 12 months due to
the recognition of higher-margin projects sold in the past two years.

Lastly on new supply, Amber Treasure Ventures Ltd (issue rating:

Baa2/NR/NR, guarantor: Nan Hai Corporation Ltd) sold USD500m 3NC1.5Y
bond at par to yield 3.00%, its IPT was at T+180bp area.

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 Credit Markets Update
Fixed Income & Currency Research
19
19 May
May 2017
2017
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