CREDIT ANALYSIS REPORT

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

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Report Date Jul 2021 Product  
Company / Issuer Fixed Income Bond Market Update Sector Bond Market Update - Bond Market Update
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Global Markets     

In June, UST yields along the 1m5y curve surged 2bps to 16bps following the more hawkish tone of the Fed at the conclusion of its latest FOMC meeting. However, UST yields at the longer end fell by 3bps to 20bps, flattening the yield curve. A rally in long-term UST yields was spurred by the Fed’s insistence that the high inflationary periods in the US are transitory. Despite the hawkish Fed, core sovereign bonds in the euro zone outperformed USTs as inflation moderated. Core sovereign bonds were also supported by the ECB’s assurance that there would be no near-term shift in monetary policy. Investors were also concerned about the economic impact of the highly infectious Delta variant which already spread globally. In the UK, rising demand for UK gilts was buoyed by rising cases of the Delta variant which delayed the final easing of restrictions by four weeks. Meanwhile, in China, CGB yields surged as local risk sentiment improved amid a slew of positive economic data. At end-June, the CGB yield curve shifted upwards on a steepening bias with the 3y yield up by 3bps and the 30y yield up by 9bps. Foreign holdings of CGB in June rose at a slower pace to RMB2.13 trillion (May: RMB2.12 trillion).

Malaysian Government Bond Market     

In June, gross issuance of MGS/GII strengthened to RM13.5 billion (May: RM13.0 billion), with new supply of MGS worth RM9.0 billion and GII worth RM4.5 billion being issued. Meanwhile, demand for MGS/GII at public auctions weakened slightly in June due to the larger targeted issuance size of RM11.0 billion (May: RM9.0 billion). The average monthly BTC ratio for all three papers featured stood at 2.2x (May: 2.3x). In the secondary market, the MGS yield curve steepened in June as yields along the 1y5y fell while yields at the longer end were broadly higher. Short-term yields fell as local risk-off sentiment continued to worsen. Domestic COVID-19 cases continued to soar despite the extension of the nationwide lockdown. Towards the end of the month, the government unveiled another RM150.0 billion stimulus package with a direct fiscal injection of RM10.0 billion. Amid expectations of higher fiscal deficit and waning buying support of MGS from the EPF, long-term yields have surged. Yield on the 10y MGS rose 5bps to 3.29% (May: 3.24%). 

Malaysian Corporate Bond Market     

Gross issuance of long-term corporate bonds came in slightly lower m-o-m in June at RM7.5 billion (May: RM7.6 billion). The drop was underpinned by the lack of new issuances from quasi-government issuers (May: RM2.0 billion) and weaker volume from unrated corporate bond issuers which fell by RM0.7 billion to RM1.3 billion (May: RM2.1 billion). In June, generic AAA, AA and A yields were broadly lower across the 3y15y curve by 1bp to 6bps. Yields fell amid the absence of negative rating actions in June compared to the prior month, improving sentiment in the local corporate bond market. The monthly trade volume for corporate bonds rose by RM5.9 billion to RM15.9 billion (May: RM10.0 billion). This was the highest monthly trade volume YTD. The higher trading volume was driven by increased trading activities in quasi-government and non-FI corporate bonds. 

MARC Rating Activities     

MARC assigned preliminary ratings of AAAIS/MARC-1IS on Small Medium Enterprise Development Bank Malaysia Bhd’s proposed IMTN and ICP programme with a combined limit of up to RM3.0 billion in June. In the same month, MARC also assigned final ratings of: 1) AA- to 7-Eleven Malaysia Holdings Bhd’s RM0.6 billion MTN programme; and 2) AAIS to S P Setia’s RM3.0 billion IMTN programme. In June, MARC affirmed a total of four issue ratings from three different issuers. There were no rating migrations and withdrawals during the month. Meanwhile, the issue ratings of Serba Dinamik Holdings Bhd, Alpha Circle Sdn Bhd and MEX II Sdn Bhd remain under MARCWatch Negative.

Foreign Holdings of Local Bonds     

In June, foreign flows into the local bond market turned negative for the first time in 14 months to -RM0.5 billion (May: +RM1.9 billion). Foreign holdings amounted to RM247.4 billion (May: RM247.9 billion), equivalent to 14.6% (May: 14.7%) of total outstanding local bonds. Outflows were mainly driven by the reduction in foreign holdings of MTB. Foreign demand for MTB was sapped by the Fed’s hawkish shift in its June FOMC meeting, rising inflation in the US and taper tantrum fears.


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