Global Markets     

Yields on govvies from developed nations continued to fall in September amid a spike in COVID-19 infections, US election uncertainty and prolonged periods of low interest rates. Demand was also driven by: 1) the Fed’s pledge to maintain its FFR target range at 0.0% to 0.25%; 2) negative inflation in the euro zone; and 3) the BOE’s interest to explore negative rates. In China, CGB yields continued to rise amid signs of ongoing economic recovery. China’s economic recovery was mostly driven by increased trade as its trading partners relaxed COVID-19 lockdowns and reopened their economies. China’s exports in August grew 9.5% y-o-y (Jul: 7.2%). Meanwhile, on September 25, FTSE Russell announced the inclusion of CGBs in its WGBI, citing ongoing market reforms and increased access for global investors.

Malaysian Government Bond Market     

YTD (Jan-Sep 2020) gross issuance of MGS/GII amounted to RM122.4 billion (2019YTD: RM93.0 billion), the highest amount recorded in a single year. This was on track towards meeting MARC’s projection of RM155.0 billion to RM165.0 billion for 2020 as the government ramps up debt issuance to fund stimulus programmes. However, MGS had underperformed in the secondary market as short-term yields rose in September; this was after having stayed at record lows in the previous month following BNM’s decision to maintain the OPR at 1.75%. MGS yields continued to surge after BNM’s announcement as investors took defensive positions ahead of the FTSE Russell annual review. Yields started to ease in the final week of September following FTSE Russell’s decision to maintain Malaysia in the WGBI. As of end-September, the benchmark yield on the 10y MGS was higher by 4bps at 2.66% (Aug: 2.62%). 

Malaysian Corporate Bond Market     

In September, gross issuance of long-term corporate bonds rose to RM9.0 billion (Aug: RM8.4 billion), led by issuances from quasi-government entities. Gross issuance from the quasi-government segment rose m-o-m to RM4.8 billion from zero in August. This was led by DanaInfra Nasional Bhd’s RM4.0 billion sukuk under its RM71.0 billion Guaranteed ICP/IMTN Programme. Meanwhile, credit spreads for AAA-, AA- and A-rated corporate bonds have tightened amid correction in MGS yields as BNM stayed pat on OPR. Yield surges on MGS were more pronounced as the correction was not fully reflected in corporate bond yields. As of end-September, yields on AAA- and AA-rated corporate bonds were higher by 2bps to 6bps across the 3y15y curve while yields on A-rated corporate bonds were lower by 2bps to 7bps.

MARC Rating Activities     

In September, MARC assigned preliminary ratings of AAIS/Stable and AAAIS/Stable to: i) OSKRB’s proposed Sukuk Murabahah/MCMTN Programme with a combined limit of up to RM2.0 billion and; ii) PLNG2’s proposed IMTN programme of up to RM3.0 billion. MARC also assigned a sub-sovereign credit rating of AAA/Stable to the state of Sabah. In the same month, MARC affirmed a total of seven issue ratings from six different issuers and upgraded the outlook of one of them to stable from negative. 

Foreign Holdings of Local Bonds     

Foreign investors continued to be net buyers of local bonds in September, though at a slower pace of purchases. The local bond market posted net foreign inflows of RM0.5 billion in September (Aug: +RM3.0 billion). Total foreign holdings stood at RM209.5 billion (Aug: RM209.0 billion) or an equivalent of 13.2% (Aug: 13.3%) as at end-September. MGS continued to be the major contributor of foreign inflows into the local bond market, followed by MTB while other bond instruments recorded net foreign outflows. In September, MGS recorded net foreign inflows of RM1.4 billion (Aug: +RM3.2 billion) with foreign holdings of MGS amounting to RM169.2 billion (Aug: RM167.8 billion), equivalent to 38.8% (Aug: 39.2%) of total outstanding MGS.