CREDIT ANALYSIS REPORT

Monthly Bond Market & Rating Snapshot - December 2020 - Full Report

Report ID 605391 Popularity 482 views 30 downloads 
Report Date Jan 2021 Product  
Company / Issuer Fixed Income BM Update Sector Bond Market Update - Bond Market Update
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Rationale
Global Markets     

In December, the UST yield curve steepened with yields from the belly until the long-end rising amid the strong run in riskier markets. The stronger risk appetite was fuelled by the gradual distribution of vaccines across the US and the passing of the USD900 billion COVID-19 aid bill. Meanwhile, short-end yields were anchored by the Fed’s commitment to asset purchases and keeping rates low. In Europe, yields were mixed among peripheral and core govvies in December. Demand for peripherals was spurred by ECB’s move to boost its PEPP. Core yields were pressured upwards by the fresh US COVID-19 stimulus deal, the Brexit trade agreement and the stronger flash manufacturing PMI data from France and Germany. In the UK, yields on UK gilts fell as the country embraced stricter lockdowns to contain the rapid spread of a highly transmissible variant of COVID-19. Meanwhile, domestic investors in China were risk averse as they increase their CGB holdings. Yields on CGB across all key maturities fell for the first time in seven months as the PBOC injected CNY320 billion into the market to shore up liquidity after recent corporate bond defaults. 

Malaysian Government Bond Market     

Total outstanding MGS/GII reached RM835.1 billion in December (Nov: RM830.6 billion) amid a lack of offerings at year-end. New supply of GII was up by RM4.5 billion while there was no new issuance of MGS. Gross issuance of MGS/GII for the full year 2020 amounted to RM151.9 billion (2019: RM115.7 billion), the highest amount recorded in a single year. Meanwhile, MGS yields ended December lower despite Malaysia’s sovereign rating downgrade by Fitch in November. This indicates that investors were buying into November’s dip. Demand was mainly driven by heightened yield-hunting activities by foreign investors.
 
Malaysian Corporate Bond Market     

December’s long-term corporate bond issuance halved to RM8.5 billion (Nov: RM16.7 billion) as issuances across all segments declined except for Cagamas. Quasi-government issues contracted the most, amounting to RM0.2 billion (Nov: RM6.4 billion) followed by rated corporate issues at RM5.2 billion (Nov: RM9.0 billion) and unrated corporate issues at RM1.2 billion (Nov: RM1.3 billion). For 2020, the gross issuance of long-term corporate bonds, while still low compared with the previous year (RM104.6 billion; 2019: RM132.0 billion), exceeded our expectations. Gross issuance in 2H2020 surged to RM65.7 billion after recording a dismal RM38.9 billion in 1H2020. Meanwhile, yield spreads were broadly higher as corporate bonds ended the month mixed as volume remained thin and foreign holdings fell. 

MARC Rating Activities     

Affirmations dominated rating actions in MARC’s universe in December 2020. The outlooks on the affirmed ratings were unchanged at stable. No rating migrations were recorded during the month. In the same month, MARC assigned a preliminary rating of AA-IS/Stable to UiTM Solar Power Dua Sdn Bhd’s proposed RM100.0 million Green SRI Sukuk. MARC also assigned a final rating of AA-IS/Stable to SHC Sdn Bhd’s proposed RM80.0 million issuance. Meanwhile, MARC withdrew its AAA rating on Cagamas MBS Bhd’s RM385.0 million Tranche 6. MARC also withdrew its counterparty ratings of AAA/MARC-1 on Credit Guarantee & Investment Facility. Meanwhile, MARC removed its AAAIS rating on Projek Lebuhraya Usahama Bhd’s RM23.4 billion Sukuk Musharakah Programme from MARCWatch Developing where it had been placed since January 24, 2020. 

Foreign Holdings of Local Bonds     

The local bond market garnered stronger foreign buying interest in December despite Malaysia’s sovereign downgrade by Fitch in November. Local bonds attracted RM3.6 billion worth of net foreign inflows (Nov: RM1.9 billion), bringing total foreign holdings to RM223.0 billion, the highest since November 2016. Foreign ownership stood at 13.9% (Nov: 13.6%) of total outstanding local bonds. MGS and GII were the primary drivers in December’s net foreign inflows. Meanwhile, foreign holdings of MTB and conventional corporate bonds also improved while foreign holdings of MITB and Islamic corporate bonds declined. For 2020, net foreign inflows into local bonds came in at RM18.3 billion (2019: RM19.9 billion). 

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