The Fed hinted that its asset purchasing activities are likely to halt in March 2022 and future rate hikes are expected to combat surging inflation. 2y10y German Bund yields surged between 9bps and 21bps in January amid spillover effects from the Fed's hawkish hints as expectations for a March policy tightening thickened. UK gilts' yields surged in January amid a soaring inflation outlook and expectations of interest rate hikes by the Fed and BoE. PBOC further slashed one-year and five-year LPR amid China's slowing economy amid strict covid restrictions, property market slumps and debt reduction campaigns.

Malaysian Government Bond Market     

MGS/GII outstanding totalled RM915.8 billion as of end-January 2022, representing a growth of 8.1% y-o-y. Gross issuance of MGS/GII throughout the month rose to RM12.0 billion (December 2021: RM4.5 billion), attributed to a higher issuance in the MGS segment of RM9.5 billion. Meanwhile,  total new issuance of GII papers declined to RM3.0 billion from RM3.5 billion recorded in December 2021. The sale of 15y GII received the strongest demand of all, with a BTC ratio of 2.6x, owing to the relatively small offering and long-term investors' demands of longer-tenure bonds. Heavy selling was seen in the mid- to longer-tenure space, with the 5- to 20-year MGS yields surging between 9bps to 15bps.

Malaysian Corporate Bond Market     

January saw issuance activity in the local corporate bond market slowing down to RM4.9 billion versus RM9.8 billion in the previous month. However, this scenario is higher than the RM2.5 billion recorded for the same period in the preceding year. Issuance of the rated (which includes Cagamas Berhad) and unrated segments were also higher, the former at RM3.3 billion (January 2021: RM2.1 billion) and the latter at RM1.6 billion (January 2021: RM0.4 billion). In tandem with local govvies, corporate bonds mostly ended the month on a weaker note. Light selling saw benchmark yields for the 10-year corporate bonds rated AAA, AA and A ticking higher by 3bps, 1bp and 4bps.

MARC Rating Activities     

In January, MARC Ratings assigned preliminary ratings of A+IS to MBSB Bank Berhad's proposed RM5.0 billion Sukuk Wakalah programme and AA-IS to Point Zone (M) Sdn Bhd's proposed Islamic Medium-Term Notes (Sukuk Wakalah) programme of up to RM3.0 billion. MARC Ratings withdrew its ratings of AA+/AA+IS on CIMB Bank Berhad's RM5.0 billion Tier 2 Subordinated Debt and Junior Sukuk programmes. MARC Ratings placed its rating of AA-IS on UiTM Solar Power Sdn Bhd's (UiTM Solar) outstanding RM202.3 million Green SRI Sukuk on MARCWatch Negative. MARC Ratings also downgraded its ratings on MEX II Sdn Bhd's RM1.3 billion Sukuk Murabahah Programme and RM150 million Junior Bonds to the defaulted rating of D from CIS /C. The rating action follows a non-payment on the principal and profit totalling RM107.8 million of the outstanding RM1.3 billion sukuk on the due date.

Foreign Holdings of Local Bonds     

Foreign participation kicked off robust in January. Overall, the local bond market recorded foreign inflows of RM3.5 billion (Dec: RM6.1 billion), which hiked up foreign holdings’ share of total outstanding to 14.8% (Dec: 14.7%). Foreign flow movement in local govvies and corporate bonds diverged in January, where government bonds experienced an inflow of RM4.0 billion. Meanwhile, corporate bonds logged a foreign outflow of RM594 million. In totality, foreign holdings in government bonds ticked up slightly to 25.6% (Dec: 25.5%) whilst in corporate bonds, it dragged down to 1.8% (Dec: 1.9%) despite the escalating global bond yields.