Global Markets     

In January, the UST yield curve steepened further with yields on medium to long-term USTs rising at a quicker pace compared to the previous month. Yields along the 5y30y surged by 9bps to 22bps as the US reflation trade gained momentum. The increased inflation expectations were spurred by the prospects for another massive fiscal stimulus package in the US. In Europe, yields on peripheral govvies rose after the ECB stated that it may not use its PEPP in full as well as on the political turmoil occurring in Italy. Meanwhile, the surge in yields on safe-haven core govvies was spurred by the reflation trade in the US. Yields on UK gilts rose as investors priced-out the possibility of negative interest rates. Demand for UK gilts was also suppressed by the UK’s positive progress in COVID-19 vaccinations and its smooth transition into the post-Brexit trade regime. In China, the CGB yield curve bear flattened as short-term rates rose more sharply compared to longer tenures. This was attributed to the inversion between the overnight and three-month interest rates as investors priced-in tighter funding conditions. The PBOC had drained massive amounts of cash from China’s banking system in a bid to prevent asset bubbles.

Malaysian Government Bond Market     

In January, total outstanding MGS/GII expanded to RM847.1 billion (Dec: RM835.1 billion) as gross issuance surged and volume of matured papers remained zero. New supply of MGS had accelerated to RM7.5 billion (Dec: None) while new supply of GII amounted to RM4.5 billion (Dec: RM4.5 billion). Meanwhile, MGS yields were volatile in early 2021, erasing some of the previous month’s gains amid increased uneasiness surrounding domestic political developments, surging COVID-19 cases and vaccine delays in comparison with Indonesia and Singapore. With the announcement of the MCO 2.0 and the emergency declaration, investors switched their focus towards BNM’s MPC meeting. They raised their bets on another OPR cut, pricing in a 25bps cut. However, yields quickly rebounded higher after BNM left the OPR unchanged at 1.75%. In the final week, MGS yields remained elevated amid the extension of MC0 2.0 until February 4 and the US reflation trade. By end-January, the MGS yield curve steepened significantly as yields along the 2y5y curve fell by 3bps to 6bps while longer-term yields rose by 1bp to 14bps.

Malaysian Corporate Bond Market     

Gross issuance of long-term corporate bonds fell in January, dipping RM6.0 billion m-o-m to RM2.5 billion (Dec: RM8.5 billion). A decline was recorded across all corporate bond segments and there were no long-term quasi-government bonds issued in January. Meanwhile, in contrast with MGS, generic AAA and A yields have declined while generic AA yields were little changed in January. Corporate bonds were mainly supported by a decline in new issuances and the announcement of the PERMAI stimulus programme which include the Wage Subsidy Programme 3.0, electricity rebates and continuation of the loan moratorium as well as reduction of repayment instalments – easing the short-term cash flow burden on businesses. Demand was also supported by yield pick-up activities by foreign investors.

MARC Rating Activities     

In January, MARC assigned preliminary ratings of AA-IS / MARC-1IS to Cellco Capital Bhd’s proposed RM520 million issuance under its ICP/IMTN (Sukuk Ijarah Programme). MARC also assigned preliminary ratings of MARC-1IS/Stable and A+IS/Stable to George Kent (Malaysia) Bhd’s proposed RM100.0 million ICP Programme and RM500.0 million IMTN Programme. Meanwhile, MARC withdrew ratings from Sunway Bhd’s RM2.0 billion CP/MTN Programme (AA-/MARC-1, Stable), Special Coral Sdn Bhd’s RM250.0 million Senior Class A MTN and Sistem Penyuraian Trafik KL Barat Sdn Bhd’s RM510 million BaIDs (A+IS/Developing). In the same month, MARC affirmed a total of five issue ratings from three different issuers. The outlook of the affirmed ratings remained unchanged at stable. 

Foreign Holdings of Local Bonds     

Foreign participation in local bonds remained healthy in January, proof that yield-hunting still remains a dominant trade theme. Despite the poor yield performance seen in MGS due to sluggish domestic demand, the local bond market managed to rake in a total net foreign inflow of RM3.7 billion (Dec: RM3.6 billion), bringing total foreign holdings to RM226.7 billion which is equivalent to 13.9% of total outstanding local bonds. MGS received most of the foreign inflows in January followed by MTB, GII and conventional corporate bonds. Foreign investors bought into January’s dip as Malaysia remains in a deflationary environment with the December CPI recording a decline of 1.4% y-o-y. Foreign sentiment also remained positive as Malaysia’s sovereign rating was affirmed at A3/Stable by an international rating agency.