mashreq Fixed Income Trading Daily Market Update Market Update • • • • • Oil trades near 2015 high on signs of easing US shale boom Oil traded near the highest price this year amid speculation a slowdown in the US shale boom will ease the biggest supply glut since 1930. Futures gained 5.8% on Wednesday that capped a five-day rally. Crude production declined by 20,000 barrels a day to 9.4 million last week, according to the Energy Information Administration. Oil has surged almost 12% percent since April 8 on signs that a slump in the number of active US rigs is leading to a production slowdown that may alleviate the global surplus. Output from shale formations will fall in May, the EIA said Monday, the first time the agency forecast a drop since it began publishing a monthly drilling report in 2013. WTI for May rose USD3.10 to USD56.39 on Wednesday, the highest close since December. Prices have climbed 5.9% percent in 2015. Brent for June settlement expired on Wednesday after advancing USD1.89 to USD60.32. Crude inventories in the US, the world’s largest oil consumer, expanded by 1.29 million barrels to 483.7 million through April 10, the EIA reported yesterday. That’s the highest level in weekly data compiled by the Energy Department’s statistical arm since August 1982. Monthly records dating back to 1920 show supplies haven’t been this high since 1930. A median stockpile increase of 3.6 million barrels was projected in a Bloomberg survey of analysts. Drillers in the nation reduced the number of active machines seeking oil to 760 last week, the fewest since December 2010, according to Baker Hughes Inc., an oilfield services company. The rig count has decreased 52% since December. (Bloomberg) Thursday, April 16, 2015 Moody’s downgrades Bahrain to Baa3 Credit rating agency Moody’s has downgraded the rating of Bahrain sovereign from Baa2 to Baa3 on the back of rising fiscal deficit with a negative outlook. The agency expects a fiscal deficit of ~ 14% of GDP in 2015 and ~ 10% of GDP in 2016. High fiscal deficit will further increase government debt to 70% of GDP by 2016. While Moody’s expects government debt to continue to rise, it does not expect Bahrain to face difficulties in financing the large deficits given access to domestic and international markets. The deterioration in fiscal balance is driven by the slump in oil prices. For 2015-16, Bahrain’s fiscal breakeven oil price of USD 100-110/bbl is well above Moody’s average Brent crude forecast of USD 55-65/bbl. Moody’s rating for Bahrain is now in line with S&P’s BBB- rating and one notch below Fitch’s BBB rating. (Bloomberg) Malaysia raises USD 1.5 billion through sale of a dual tranche sukuk issue Malaysia cut its borrowing costs in a USD1.5 billion sale of 10- and 30-year sukuk, its first global sukuk offering since 2011. The government issued USD1 billion of 10-year sukuk to yield 3.04%, or 115 bps more than similar- maturity US treasuries. It also sold USD500 million of 30-year sukuks at 4.24%, translating into a spread of 170 bps over the benchmark treasuries. Both tranches were priced below the initial price targets of 135 bps and 185 bps respectively. The offering got orders for USD9 billion, according to a Ministry of Finance statement. The sale was a test of market sentiment amid concern that state investment company 1Malaysia Development Bhd. would default. 1MDB’s rising debt has drawn criticism from lawmakers and has led to a call from former premier Mahathir Mohamad for Prime Minister Najib Razak to step down. Fitch Ratings also warned in March that there’s a risk of a sovereign downgrade as plunging oil revenue weighs on the government’s finances. Malaysia tapped the debt market just as foreign-exchange reserves slumped to USD105 billion last month, the lowest level since 2010, and as USD1.25 billion of sukuk comes due in June. The Asian nation also has two other government Islamic notes outstanding, which mature in 2016 and 2021. It has no conventional foreign-currency bonds. Asian investors took up 50% of the 10-year offering including 28% from Malaysia, while purchases from Europe were 16% and 24% from the Middle East, according to the statement. 10% of the issue was placed with US investors. 50% of the 30 year tranche was placed within Asia (Malaysia 15%), 29% in the US, 19% in Europe and 2% in the Middle East. (Bloomberg) Japan snaps China’s 6-year run as top holder of US treasuries Japan overtook China as the top foreign holder of US government debt for the first time since the global financial crisis amid signs of economic and policy shifts in Asia’s two largest economies. Japan owned USD1.2244 trillion of US debt, compared with USD1.2237 trillion for China as of February, according to Treasury Department data released yesterday. Japan’s holdings fell by USD14.2 billion from the preceding month and that of China’s dropped by USD15.4 billion. Japan’s holdings of treasuries increased USD13.6 billion from a year earlier, while China’s declined USD49.2 billion. Treasury future figures are likely to show a resumption of debt purchases by Japan, reflecting the start of the country’s new fiscal year, which began April 1. Since December 2012, when Shinzo Abe was elected Japan’s Prime Minister on a platform of spurring inflation by weakening the yen, its US government debt holdings have risen USD113.2 billion compared with a USD3.3 billion increase by China. China’s holding of treasuries peaked at USD1.3167 trillion in November 2013. China and Japan account for about two-fifths of all foreign ownership of treasuries, which dropped USD56.6 billion in February to USD6.16 trillion, the figures showed. Of that total, USD4.09 trillion were government holdings. (Bloomberg) Australia jobless rate unexpectedly dropped to 6.1% in March Australia’s jobless rate unexpectedly fell in March, spurring a jump in the AUD on optimism the central bank’s effort to shore up the economy with record-low interest rates is paying off. Unemployment dropped to 6.1% from a revised 6.2% in February, as the number of people employed rose 37,700, the statistics bureau said in Sydney this morning. The currency extended gains as traders pared bets on the scale of rate cuts, after the report reinforced data showing improved business confidence in March. The Reserve Bank of Australia kept borrowing costs at 2.25% last week, after cutting in February, as it seeks to encourage spending by consumers and companies to offset falling mining investment. The number of full-time jobs rose by 31,500 in March, following a revised 41,900 increase in February, and part-time employment gained by 6,100 last month. Australia’s participation rate, a measure of the labor force in proportion to the population, edged higher to 64.8% in March from a revised 64.7%.(Bloomberg) Page 1
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mashreqFixed Income Trading
Daily Market Update
Market Update
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Oil trades near 2015 high on signs of easing US shale boom
Oil traded near the highest price this year amid speculation a slowdown in the US shale boom will ease the biggest supply glut since 1930. Futures gained
5.8% on Wednesday that capped a five-day rally. Crude production declined by 20,000 barrels a day to 9.4 million last week, according to the Energy
Information Administration. Oil has surged almost 12% percent since April 8 on signs that a slump in the number of active US rigs is leading to a production
slowdown that may alleviate the global surplus. Output from shale formations will fall in May, the EIA said Monday, the first time the agency forecast a drop
since it began publishing a monthly drilling report in 2013. WTI for May rose USD3.10 to USD56.39 on Wednesday, the highest close since December. Prices
have climbed 5.9% percent in 2015. Brent for June settlement expired on Wednesday after advancing USD1.89 to USD60.32. Crude inventories in the US,
the world’s largest oil consumer, expanded by 1.29 million barrels to 483.7 million through April 10, the EIA reported yesterday. That’s the highest level in
weekly data compiled by the Energy Department’s statistical arm since August 1982. Monthly records dating back to 1920 show supplies haven’t been this
high since 1930. A median stockpile increase of 3.6 million barrels was projected in a Bloomberg survey of analysts. Drillers in the nation reduced the
number of active machines seeking oil to 760 last week, the fewest since December 2010, according to Baker Hughes Inc., an oilfield services company. The
rig count has decreased 52% since December. (Bloomberg)
Thursday, April 16, 2015
Moody’s downgrades Bahrain to Baa3
Credit rating agency Moody’s has downgraded the rating of Bahrain sovereign from Baa2 to Baa3 on the back of rising fiscal deficit with a negative outlook.
The agency expects a fiscal deficit of ~ 14% of GDP in 2015 and ~ 10% of GDP in 2016. High fiscal deficit will further increase government debt to 70% of
GDP by 2016. While Moody’s expects government debt to continue to rise, it does not expect Bahrain to face difficulties in financing the large deficits given
access to domestic and international markets. The deterioration in fiscal balance is driven by the slump in oil prices. For 2015-16, Bahrain’s fiscal breakeven
oil price of USD 100-110/bbl is well above Moody’s average Brent crude forecast of USD 55-65/bbl. Moody’s rating for Bahrain is now in line with S&P’s BBB-
rating and one notch below Fitch’s BBB rating. (Bloomberg)
Malaysia raises USD 1.5 billion through sale of a dual tranche sukuk issue
Malaysia cut its borrowing costs in a USD1.5 billion sale of 10- and 30-year sukuk, its first global sukuk offering since 2011. The government issued USD1
billion of 10-year sukuk to yield 3.04%, or 115 bps more than similar- maturity US treasuries. It also sold USD500 million of 30-year sukuks at 4.24%,
translating into a spread of 170 bps over the benchmark treasuries. Both tranches were priced below the initial price targets of 135 bps and 185 bps
respectively. The offering got orders for USD9 billion, according to a Ministry of Finance statement. The sale was a test of market sentiment amid concern
that state investment company 1Malaysia Development Bhd. would default. 1MDB’s rising debt has drawn criticism from lawmakers and has led to a call
from former premier Mahathir Mohamad for Prime Minister Najib Razak to step down. Fitch Ratings also warned in March that there’s a risk of a sovereign
downgrade as plunging oil revenue weighs on the government’s finances. Malaysia tapped the debt market just as foreign-exchange reserves slumped to
USD105 billion last month, the lowest level since 2010, and as USD1.25 billion of sukuk comes due in June. The Asian nation also has two other government
Islamic notes outstanding, which mature in 2016 and 2021. It has no conventional foreign-currency bonds. Asian investors took up 50% of the 10-year
offering including 28% from Malaysia, while purchases from Europe were 16% and 24% from the Middle East, according to the statement. 10% of the issue
was placed with US investors. 50% of the 30 year tranche was placed within Asia (Malaysia 15%), 29% in the US, 19% in Europe and 2% in the Middle East.
(Bloomberg)
Japan snaps China’s 6-year run as top holder of US treasuries
Japan overtook China as the top foreign holder of US government debt for the first time since the global financial crisis amid signs of economic and policy
shifts in Asia’s two largest economies. Japan owned USD1.2244 trillion of US debt, compared with USD1.2237 trillion for China as of February, according to
Treasury Department data released yesterday. Japan’s holdings fell by USD14.2 billion from the preceding month and that of China’s dropped by USD15.4
billion. Japan’s holdings of treasuries increased USD13.6 billion from a year earlier, while China’s declined USD49.2 billion. Treasury future figures are likely
to show a resumption of debt purchases by Japan, reflecting the start of the country’s new fiscal year, which began April 1. Since December 2012, when
Shinzo Abe was elected Japan’s Prime Minister on a platform of spurring inflation by weakening the yen, its US government debt holdings have risen
USD113.2 billion compared with a USD3.3 billion increase by China. China’s holding of treasuries peaked at USD1.3167 trillion in November 2013. China and
Japan account for about two-fifths of all foreign ownership of treasuries, which dropped USD56.6 billion in February to USD6.16 trillion, the figures showed.
Of that total, USD4.09 trillion were government holdings. (Bloomberg)
Australia jobless rate unexpectedly dropped to 6.1% in March
Australia’s jobless rate unexpectedly fell in March, spurring a jump in the AUD on optimism the central bank’s effort to shore up the economy with record-low
interest rates is paying off. Unemployment dropped to 6.1% from a revised 6.2% in February, as the number of people employed rose 37,700, the statistics
bureau said in Sydney this morning. The currency extended gains as traders pared bets on the scale of rate cuts, after the report reinforced data showing
improved business confidence in March. The Reserve Bank of Australia kept borrowing costs at 2.25% last week, after cutting in February, as it seeks to
encourage spending by consumers and companies to offset falling mining investment. The number of full-time jobs rose by 31,500 in March, following a
revised 41,900 increase in February, and part-time employment gained by 6,100 last month. Australia’s participation rate, a measure of the labor force in
proportion to the population, edged higher to 64.8% in March from a revised 64.7%.(Bloomberg)
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mashreqFixed Income Trading
Daily Market Update
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China seen expanding mortgage bonds to revive property market
China is poised to expand mortgage bonds to lift its slumping real estate market that accounts for a third of the economy. Officials will likely allow banks to
sell commercial mortgage-backed notes for the first time by the end of the year after reviving securities tied to home loans in 2014, according to China
Merchants Securities Co. and China Chengxin International Credit Rating Co. The offerings, which help banks boost mortgage lending by freeing space on
balance sheets, will grow “substantially” this year, China Credit Rating Co. said. The government of Premier Li Keqiang eased home-purchase rules after new
housing prices slid in many cities across China in February. Authorities, who halted securitization in 2009 after subprime mortgage bonds triggered the global
financial crisis, are returning to such offerings to spur an economy growing at the slowest pace since 1990. (Bloomberg)
Thursday, April 16, 2015
Pakistan’s Finance Minister expects a Rate cut in central bank’s next meeting
Pakistan’s central bank is likely to cut interest rates again at its next meeting, Finance Minister Ishaq Dar said, citing inflation that is at a 12-year low. In an
interview in London on Wednesday, Mr. Dar also said the government is committed to its privatization program and may be able to sell Pakistan Steel Mills
Corp. and the core unit of Pakistan International Airlines Corp. by the end of 2015. The government expects to return to international debt markets in the
fiscal year starting July 1, he said. Pakistan’s inflation rate was 2.49% in March, the lowest since 2003, while the State Bank of Pakistan’s discount rate
stands at 8% following a 50 basis point cut on March 21. The nation has benefited from the decline in oil prices over the last year. “I think any sensible
calculation would expect a further cut in the next meeting” in early May, Dar said. The central bank is independent, he noted, and declined to predict the size
of a rate reduction to avoid a perception of interference. Ishaq Dar is leading Prime Minister Nawaz Sharif’s national economic recovery plan and raising
funds from equity and bond sales to narrow the budget deficit. The government forecasts the shortfall will contract to 4.9% of gross domestic product this
fiscal year, from 5.55 in the year before. Dar said that in 2016, some outstanding international bonds will mature. “Surely we will be back in the international
market” when that occurs, he said. The government wants to sell both traditional bonds and sukuk, declining to specify a quantity. (Bloomberg)
Rolta’s bonds and share price plunge after a research report issued by Glaucus Group
Rolta India Ltd.’s dollar-denominated bonds plunged by over 12 points after Glaucus Research Group said it’s betting on declines in the software developer’s
notes that are issued out of Delaware. Glaucus initiated coverage of Rolta’s Delaware-issued 2018 and 2019 corporate bonds recommending a “strong sell”
rating. Rolta’s dollar- denominated bonds due in 2019 dropped by 12 points to 87.5 cents on the dollar this morning, while the company’s shares dropped as
much as 10%, according to data compiled by Bloomberg. Rolta’s Chief Financial Officer Hiranya Ashar said in a phone interview that Glaucus’ report alleging
that the company is unlikely to pay bondholders is “absolutely baseless and has no merit,” and the company will reply to Glaucus allegations after going
through the report “in detail.” Glaucus said it has a short position in Rolta’s Delaware issued bonds and it has “no investment interest in any security traded
on any exchange in India or issued by an entity incorporated or located in India.” Rolta India Limited has informed the Exchange regarding a press release
dated April 16, 2015 , titled "Rolta denies contents of the Glaucus Research Report calls it baseless, erroneous and malafide".(Bloomberg)
ECB: Eurozone economy to keep strengthening
The European Central Bank (ECB) President Mario Draghi said the Eurozone's economy had gained momentum since the end of 2014 and the recovery would
gradually strengthen. Noting the small pickup in inflation to -0.1% in March, Draghi said that although it was likely to remain low, inflation is expected to
increase later in 2015 and to pick up further during 2016 and 2017. Draghi further added that while remaining on the downside, the risks surrounding the
economic outlook for the Eurozone have become more balanced on account of the recent monetary policy decisions, the fall in oil prices and a lower euro
exchange rate. In March 2015, the ECB boosted its predictions for growth in the Eurozone economy to 1.5% in 2015, but said that oil prices would keep
price inflation flat in 2015 before advancing toward 1.8% in 2017. (Reuters)
Emaar Properties on Wednesday approved a cash dividend of 15 per cent of the share capital equivalent to over AED1.074 billion ($292 million) for
distribution to shareholders. Its annual general meeting also re-elected its board of directors with Mohamed Alabbar as chairman and approved a plan to
reduce the number of board members from 11 to 10, the company said in a statement. Alabbar said, “At Emaar, we are focused on maximising stakeholder
value, and our record net profit in 2014 of AED3.293 billion surpassed our estimates of AED3.067 billion." The chairman also said that Emaar is currently
focused on two joint venture mega-developments in Dubai, together valued at over AED200 billion. (Bloomberg)
S&P cuts Greek rating over prolonged talks with lenders
The ratings agency Standard & Poor's (S&P) cut the credit rating for Greece to 'CCC+' from 'B-‘, which is deeper into the junk territory, citing worsening
economic conditions due to prolonged negotiations between the country and its lenders. Greece has been locked in talks with its EU and IMF creditors on
economic reforms for months and would run out of cash within weeks if it fails to strike a deal to unlock fresh bailout funds. S&P said it expected the Greek
government to be able to continue to pay salaries and pensions in cash, although its fiscal income was weakening. However, the agency warned that without
deep economic reforms or further relief, it expects Greeks debt and other financial commitments will become
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mashreqFixed Income Trading
Daily Market Update
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Earnings Update
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Thursday, April 16, 2015
Japan edges out China as largest holder of US Treasuries
According to the US Treasury Department, Japan edged out China as the largest holder of US Treasuries in February. Data showed outflows from US
Treasuries totaled $6.30bn in February, down from net selling of $55.1bn in January, which was the highest in three years. Japan eclipsed China as the
largest US Treasury holder for the first time since August 2008. Japan's holdings actually declined in February to $1.22tn from $1.23tn in January, while
China's also fell to $1.22tn from $1.23tn. Foreign central banks sold $11.1bn in Treasuries in February, shedding the US government debt for a fifth straight
month. The data was in line with market movements in the Treasury market, which showed investors selling US Treasuries in February as yields on the long
end rose. Benchmark 10-year US yields in February ranged between 1.65% at the beginning of the month to 2.00% at the end. (Reuters)
DIB’s first quarter net profit up 34 %
Dubai Islamic Bank’s (DIB) net profit increased to AED 850mn in 1Q2015, showing an increase of 34% YoY. The bank’s total income increased 19% YoY to
AED 1.77bn in 1Q2014. Net operating revenue increased to AED 1.56bn, reflecting an increase of 20% YoY. The bank’s total assets stood at AED 139.6bn as
compared to AED 123.8bn at the end of 2014, representing an increase of 13%. Customer deposits amounted to AED 104.1bn as compared to AED 92.3bn
at the end of 2014. EPS amounted to AED 0.18 in 1Q2015 versus AED 0.12 in 1Q2014. The bank’s cash coverage ratio improved to 81% as compared to
78% at the end of 2014. DIB’s non performing loans (NPL) ratio improved to 7 per cent at the end of the quarter compared to 8 per cent at the close of
2014. At the close of the quarter, DIB’s capital adequacy ratio stood at 17 % While return on assets increased by 42 basis points (bps) to 2.58 per cent in
the first quarter of this year form from 2.17 per cent in the same period last year, return on equity increased by 204 bps to 19.3 per cent in the Q1 2015
from 17.3% last year. (Bloomberg)
NBO net profit surges 23% YoY in 1Q2015
National Bank of Oman (NBO) reported net profit of OMR12.6mn in 1Q2015, representing an increase of 23%. The bank posted an operating profit of
OMR17.1mn in 1Q2015, up 25% YoY. The bank’s total assets grew to OMR3.2bn in 1Q2015. Loans, advances & financing activities for customers reached
OMR2.39bn, while customers’ deposits & unrestricted investment accounts amounted to SR2.44bn. (MSM)
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mashreqFixed Income Trading
Daily Market Update
Change Change USD EUR AED
Spread Day YTD Last 1d Chg Last 1d Chg Last 1d Chg