CREDIT ANALYSIS REPORT

Monthly Bond Market & Rating Snapshot - February 2021 - Full Report

Report ID 6053622 Popularity 179 views 14 downloads 
Report Date Mar 2021 Product  
Company / Issuer Fixed Income BM Update Sector Bond Market Update - Bond Market Update
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Rationale
Global Markets     

From the US to Germany and the UK, yields on govvies ended February with their biggest monthly surge in years amid expectations of a rapid post-pandemic recovery, causing a global bond rout. The move first began in the US as prospects for a huge fiscal boost gained significant momentum. Combined with global central banks’ dovish holds, yield curves have steepened significantly. The global vaccination drive also pushed yields higher with the 10y yield for the US, Germany and the UK leaping by 27bps to 52bps. Meanwhile, in China, the CGB market was shielded against the sell-off in global bonds. The CGB market was largely supported by record foreign inflows during the month as China’s deleveraging campaign and market reforms enticed yield hunters. CGB yields along the 3m2y fell 3bps to 61bps and yields along the 3y50y curve rose 2bps to 10bps.

Malaysian Government Bond Market     

Gross issuance of MGS/GII in February amounted to RM12.0 billion, the same as the previous month, with new supply of MGS worth RM4.0 billion and GII worth RM8.0 billion. Despite the upward movement in yields, demand for MGS/GII papers remained strong at auction. Demand for these papers was supported by bargain-hunting activities amid the sell-off in govvies in secondary markets which had cheapened entry. MGS were heavily sold in secondary markets following the aggressive yield pick-up seen in the UST market that spilled across global bond markets. Further selling pressure came from the local front which further impacted the already weakened sentiment on MGS. Local factors include: 1) the removal of EPF i-Sinar withdrawal conditions; 2) initiation of Malaysia’s COVID-19 vaccination programme; 3) heavy new supply of MGS/GII during the month; 4) reduced expectations of further OPR cuts. Both the 3y and 10y MGS were last quoted at 1.94% (Jan: 1.84%) and 3.09% (Jan: 2.71%). 

Malaysian Corporate Bond Market     

In February, gross issuance of long-term corporate bonds amounted to RM5.4 billion (Jan: RM2.5 billion) with a m-o-m increase in financing activities seen across all segments. Gross issuance was led by issuances from rated corporate and quasi-government bond issuers that amounted to RM2.3 billion (Jan: RM2.0 billion) and RM2.2 billion (Jan: None). With the sell-off witnessed in secondary markets for local govvies, yields on corporate bonds also surged in February amid inflationary pressure and a rise in negative rating actions. Yields of generic AAA, AA and A-rated corporates on the short end rose by 1bp to 5bps while yields at the longer-end surged 6bps to 38bps, causing their yield curves to steepen. 

MARC Rating Activities     

In February, final ratings of two issues were added to MARC’s rating universe and two issue ratings have been affirmed with their outlook remaining unchanged at stable. Four issue ratings were downgraded and two issue ratings were placed on MARCWatch Negative. Meanwhile, MARC upgraded Top Glove Corporation Bhd’s corporate credit rating to AA+ from AA. MARC lowered its ratings on Alpha Circle Sdn Bhd’s (Alpha Circle) outstanding RM160 million Senior Sukuk Musharakah to AIS/Negative from AA-IS/Negative, and RM55 million Junior Sukuk Musharakah to BBBIS/Negative from AIS/Negative. Issue ratings of MEX II Sdn Bhd’s (MEX II) RM1.3 billion Sukuk Murabahah Programme and RM150.0 million Junior Bonds were downgraded further to BBIS from BBBIS and B to BB. 

Foreign Holdings of Local Bonds     

In February, foreign investors remained net buyers of local bonds for the 10th consecutive month amid heightened optimism on economic recovery due to the relaxation of movement control orders and the initiation of Malaysia’s vaccination drive. This was compounded by Malaysia’s attractive yield valuations as the global bond rout had raised the yield spread of local bonds in comparison with their global counterparts. The total net foreign inflows into the local bond market amounted to RM7.2 billion (Jan: RM3.7 billion), bringing total foreign holdings to RM233.8 billion, which is the highest since October 2016 and equivalent to 14.3% of total outstanding local bonds. 

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