CREDIT ANALYSIS REPORT

MONTHLY BOND MARKET & RATING SNAPSHOT - AUGUST 2021 - FULL REPORT

Report ID 6053890044 Popularity 445 views 23 downloads 
Report Date Oct 2021 Product  
Company / Issuer Fixed Income BM Update Sector Bond Market Update - Bond Market Update
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Rationale
Global Markets          

UST yields rose in August amid nervous sentiment ahead of the Fed’s Jackson Hole annual symposium. The sell-off was also spurred by the gradual reopening of developed economies despite the rapid spread of the COVID-19 Delta variant. The 10y UST yield was 6bps higher at 1.30% (Jul: 1.24%). Sovereign yields in the euro zone were also higher amid possible pullback in monetary support by the US Fed and improving economic growth in the euro zone. Euro zone sovereign bond yields also surged on the higher-than-expected August inflation reading. The 10y German Bund yield edged 2bps higher to -0.43% (Jul: -0.45%). In the UK, gilt yields trended higher in August by 6bps to 9bps on the lifting of UK’s final COVID-19 restrictions, shifting the curve upwards. Yield on the 10y UK gilt surged 6bps to 0.71% (Jul: 0.65%). Meanwhile, in China, CGB yields ended the month broadly higher amid selling pressure from local investors due to the surge in PPI. However, foreign investors remained as net buyers of CGBs. Yield on the 10y CGB ended the month 1bp higher at 2.85% (Jul: 2.84%). 

Malaysian Government Bond Market         

In August, gross issuance of MGS/GII was slightly lower at RM13.5 billion (Jul: RM15.0 billion), with new supply of MGS valued at RM9.0 billion and GII valued at RM4.5 billion. Demand for MGS/GII papers tendered during the month slowed down with a monthly average BTC ratio of 2.1x (Jul: 2.7x). Three papers were tendered in August with a total notional value of RM11.5 billion and a private placement of RM2.0 billion. Demand was subdued amid the uptick in UST yields. In August, yields on MGS were pushed higher despite an influx of foreign funds. MGS yields were traded higher as trade volume simmered due to local investors staying on the sidelines amid the political uncertainty in Malaysia. MGS yields were also influenced by higher yields in the UST market amid heightened tapering expectations by the Fed. Yield on the 10y MGS settled 4bps higher at 3.21% (Jul: 3.17%).

Malaysian Corporate Bond Market         

Gross issuance expanded to RM8.3 billion in August (Jul: RM6.1 billion) amid higher new supply of rated corporate bond issuances. Rated corporate bond issuance surged to RM4.8 billion (Jul: RM1.9 billion) while new issuances from Cagamas amounted to RM0.6 billion (Jul: Nil. However, issuances from unrated corporate bond and quasi-government issuers recorded m-o-m declines. In the secondary market, credit spreads for generic AAA, AA and A-rated corporate bonds were broadly lower in August. This was largely due to the small surge in MGS yields while yields on corporate bonds fell. Gains were supported by the easing of movement restrictions and heightened foreign demand.

MARC Rating Activities           

MARC has assigned a preliminary rating of AAAIS/Stable to Bank Pertanian Malaysia Berhad’s proposed RM1.0 billion IMTN Programme in August. In the same month, MARC affirmed a total of eight issue ratings from seven different issuers with their outlook remaining at stable. In August, MARC lowered its ratings on Alpha Circle Sdn Bhd’s outstanding RM140.0 million Senior Musharakah to BBIS/Negative from BBBIS/Negative and RM55 million Junior Sukuk Musharakah to BIS/Negative from BBIS/Negative. Subsequently, MARC removed the ratings from MARCWatch Negative. Meanwhile, the issue ratings of Serba Dinamik Holdings Bhd and MEX II Sdn Bhd remain under MARCWatch Negative.

Foreign Holdings of Local Bonds         

In August, foreign investors turned net buyers of local bonds after being net sellers in the previous two months. Foreign inflows into the local bond market in August amounted to RM6.6 billion, offsetting the outflows that occurred in June and July which amounted to RM4.1 billion. Foreign holdings amounted to RM250.4 billion (Jul: RM243.8 billion) with foreign investors holding 14.6% of total outstanding local bonds (Jul: 14.3%). Foreign inflows were mostly concentrated on MGS and GII. 

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