Global Markets     

In the US, PCE eased for the third consecutive month in May due to the continuing decline in purchases of durable and non-durable goods. In contrast, US retail sales rebounded in June after posting a decline for three consecutive months since March. In Europe, GDP projections were downgraded to -8.7% in 2020 and 6.1% in 2021 as the lifting of lockdown measures in some countries are proceeding less swiftly than expected. In the UK, industrial production continued to experience a double-digit y-o-y decline in May as movement restrictions severely affected economic activities. Likewise, factory gate prices of manufactured goods in May registered the largest fall since 2015. In China, manufacturing PMI gained momentum and improved further, buoyed by the easing of containment measures. In May, the growth of total social financing quickened as banks extended CNY1.5 trillion of new yuan loans.

Malaysian Government Bond Market                                                                      

In June, total outstanding MGS/GII grew to RM799.5 billion (May: RM789.5 billion) amid higher gross issuance and lower volume of maturing papers. Gross issuance of MGS/GII had strengthened by RM6.0 billion to RM15.5 billion in June (May: RM9.5 billion). In the primary market, demand for MGS/GII remained robust as all issues were oversubscribed by more than 2x. Meanwhile, the MGS secondary market ended the month slightly weaker as yields surged along the 7y20y curve. In the first week, MGS yields had surged on concerns of widening fiscal deficit and higher debt levels. Upwards pressure on yields started to ease in the following weeks as investors placed their bets on further central bank support following weak economic data releases in the final week. The 10y MGS settled 6bps higher at 2.87% (May: 2.81%).

Malaysian Corporate Bond Market 

Outstanding long-term corporate bonds increased slightly to RM711.1 billion as at end-June (May: RM708.5 billion) amid a slowdown in gross issuance. Gross issuance of long-term corporate bonds moderated to RM6.7 billion (May: RM7.1 billion) as financing activities slowed for all segments except for rated corporate bond issuers. In 1H2020, total gross issuance of long-term corporate bonds came in at RM38.9 billion (1H2019: RM78.4 billion), the lowest first-half amount since 2016. A significant decline in issuances was observed across all unrated and rated segments except for Cagamas. Meanwhile, yields on investment-grade corporate bonds in June were broadly lower by 1bp to 7bps across all tenures except for the AAA-rated spectrum. AA & A-rated bonds were mainly supported by bargain-hunting activities from domestic investors.

MARC Rating Activities 

In June, MARC assigned two final ratings of AA-IS with a stable outlook to Leader Energy’s Sdn Bhd’s proposed RM260.0 million ASEAN Green SRI Sukuk Wakalah and to Pelabuhan Tanjung Pelepas Sdn Bhd’s proposed RM1.9 billion IMTN. MARC also assigned preliminary ratings of AAAIS/MARC-1IS and AA-IS with a stable outlook to GMD’s proposed RM1.0 billion IMTN/ICP programmes and MRCB’s proposed RM5.0 billion IMTN programme. In the same month, MARC reaffirmed four issue ratings from different issuers and the outlook on these ratings were not revised. MARC also affirmed the FI ratings of Islamic Development Bank. Meanwhile, Projek Lebuhraya Usahasama Bhd and MEX II Sdn Bhd’s ratings remain on MARCWatch Developing and MARCWatch Negative respectively. 

Foreign Holdings of Local Bonds

In June, foreign holdings of local bonds have expanded by RM11.6 billion (May: RM1.5 billion) to RM198.9 billion. Net foreign inflows in June was the highest recorded since May 2014 which recorded net foreign inflows of RM13.5 billion. Foreign investors continued to increase their holdings of local bonds despite the downgrades in Malaysia’s economic outlook and rating outlook by international agencies during the month. Foreign demand for local bonds was fuelled by the ongoing global accommodative monetary policies and Malaysia’s subdued inflation outlook. MGS accounted for most of the inflows (+RM7.8 billion) followed by GII (+RM2.4 billion), MITB (+RM1.1 billion) and MTBs (+RM0.5 billion).