Global Markets     

USTs were in demand in November despite several COVID-19 vaccine breakthroughs and Joe Biden’s US presidential election victory. Demand was buoyed by uncertainty surrounding the ongoing US fiscal stimulus deadlock and additional stimulus by the Fed. In Europe, peripheral government bond yields (Spain, Portugal, Italy and Greece) fell while yields in France and Germany edged higher. The peripheral yields fell amid optimism around COVID-19 vaccines and expectations of further stimulus by the ECB. In the UK, government bond yields were traded higher on hopes that a no-deal Brexit might be avoided. Yields also surged on positive vaccine news and the BoE’s move to keep the policy rate at 0.10%. Meanwhile, foreign interest in China’s onshore bond market continued to grow steadily with China’s bonds added to major global bond indices and the speeding up of reforms. Despite this, CGB yields continued to rise as foreign holdings remain relatively low at 3.63% of China’s overall bond market (Oct: 3.57%).

Malaysian Government Bond Market     

In November, outstanding MGS/GII rose to RM830.6 billion (Oct: RM823.1 billion) as net issuance strengthened to RM7.5 billion amid a lower volume of matured papers of RM3.0 billion (Oct: RM11.7 billion). While gross issuance fell to RM10.5 billion (Oct: RM14.5 billion), total gross issuance YTD, standing at RM147.4 billion, was significantly higher compared to the previous year’s corresponding period (2019YTD: RM136.9 billion). Demand for MGS/GII at public auctions weakened with the average monthly BTC ratio falling to 1.7x (Oct: 2.4x);all three govvies featured in November garnered BTC ratios of less than 2x. In the secondary market, MGS were weighed by improved risk-on sentiment, intensifying selling pressure at the long end since last month. The losses have also spread to the shorter end of the curve. The 3y MGS and 10y MGS were last quoted at 1.91% (Oct: 1.76%) and 2.74% (Oct: 2.62%). 

Malaysian Corporate Bond Market     

Gross issuance of long-term corporate bonds continued to be robust in November at RM16.7 billion (Oct: RM16.2 billion). Those from quasi-government entities surged to RM6.4 billion (Oct: RM2.3 billion) while other segments recorded a monthly decline. Meanwhile, Malaysian corporate bonds saw tepid interest in the secondary market as trading volume dwindled. Most of the trading interest was concentrated on non-FIs. Trading in Cagamas, quasi-government and FI corporate bonds was mostly quiet. Overall, yields ended the month mostly higher by 3bps to 22bps across the “AAA”, “AA” and “A” rating bands along the 3y15y curve, with the long end cumulating most of the losses. Credit spreads were also narrower as yield surges were at a slower pace compared to local govvies. 

MARC Rating Activities     

In November, MARC assigned five final ratings to the sukuk programmes of Sime Darby Property Bhd, Sunsuria Bhd, Evyap Sabun Malaysia Sdn Bhd, Guan Chong Bhd, and OSK Rated Bond Sdn Bhd. MARC also assigned a preliminary rating of AA-_IS/Stable to SHC Capital Sdn Bhd’s proposed RM80.0 million. Meanwhile, MARC withdrew its ratings of AAA-_IS/MARC-1_IS on Gas Malaysia Bhd’s RM700 million ICP/IMTN programmes. In the same month, MARC affirmed a total of 13 issue ratings from seven different issuers and revised the outlook on three issue ratings. MARC has downgraded MEX II Sdn Bhd’s RM1.3 billion Sukuk Murabahah Programme to BBB_IS from A_IS/Negative and its RM150.0 million Junior Bonds to BB from BBB/Negative. 

Foreign Holdings of Local Bonds     

Foreign investors continued to be net buyers of local bonds in November albeit at a slower buying pace. Foreign demand was boosted by the COVID-19 vaccine optimism, ringgit strengthening and deflationary environment. Total foreign holdings came in at RM219.4 billion with net inflows at RM1.9 billion (Oct: RM8.0 billion). MGS continued to attract most of the foreign inflows, followed by GII and conventional corporate bonds; other instruments, however, recorded net foreign outflows. Total net foreign inflows YTD stood at RM14.8 billion (2019YTD: +11.8 billion), the highest since 2012 when it reached RM61.9 billion.