RESEARCH REPORT

Monthly Bond Market and Rating Snapshot - February 2020

Report ID 60491 Popularity 195 views 11 downloads 
Report Date Mar 2020 Product  
Research Type Fixed Income BM Update Sector Bond Market Update - Bond Market Update
Price (RM)
Normal: RM300.00        
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Rationale

Global Markets     

IHS Markit’s flash reading for the US Composite Output Index registered the steepest contraction in more than six years amid COVID-19 outbreak. In Europe, the ECB said that policy easing measures and a fiscal push are needed for inflation to return. In the UK, pay growth moderated in the private services sector but remained steady in the public services sector and the manufacturing sector. In China, total social financing surged to an all-time high as the government sought to support the economy suffering from COVID-19. The outbreak took its toll on the Chinese economy with the PMI for both manufacturing and non-manufacturing sectors plunging amid factory closures and labour shortages.

Malaysian Government Bond Market

In February, the total combined outstanding MGS/GII rose to RM781.7 billion (January: RM769.7 billion). The increase was attributed to the significant increase in gross issuance activity with GII dominating and contributing RM8.0 billion (January: RM3.5 billion) towards total issuance. In the secondary market, MGS yields across the curve continued to tighten amid a weak domestic economic outlook that gave support for the current low yield levels and raised expectations of further cuts in the OPR. The worsening COVID-19 outbreak and the government’s announcement of a stimulus package for 2020 further strengthened the risk-off sentiment.

Malaysian Corporate Bond Market

Gross issuance of long-term corporate bonds picked up higher by RM6.6 billion m-o-m to RM10.7 billion (January: 4.1 billion) as corporate bond issuers took their cue from the current low yield environment to raise more funds. Large volume prints mostly came from the quasi-government segment, which was led by Prasarana Malaysia Bhd’s RM3.5 billion sukuk issued in five tranches. In the secondary market, corporate bond benchmark yields drifted lower on continued strong interest in especially quasi-government as well as AAA and AA-rated bonds. Benchmark yields for AAA, AA and A-rated fell by 12bps to 37bps (January: 13bps to 32bps).

MARC Rating Activities

In February, MARC assigned a final rating of AA-IS /Stable to TG Excellence Bhd’s proposed RM3.0 billion Perpetual Sukuk Wakalah Programme, as well as a preliminary rating of AAA/Stable on Bank Pembangunan Malaysia’s proposed RM5.0 billion IMTN programme. MARC also affirmed a total of three issue ratings with stable outlook under three different issuers, as well as Bank Pembangunan Malaysia’s AAA/Stable FI rating. By end-February, PLUS’ AAAIS /Stable rating on its RM23.35 billion Sukuk Musharakah Programme remained on MARCWatch Developing.

Foreign Holdings of Local Bonds

Foreign investors turned net sellers of local bonds in February. However, the local bond market remained resilient, suggesting support from onshore investors. Foreign holdings of local bonds moderated by RM8.1 billion to RM200.1 billion (January: RM208.2 billion), equivalent to 13.1% (January: 13.8%) of total outstanding local bonds. The decline in holdings was mainly attributed to the reduction in foreign holdings of MGS. Foreign demand was sapped by rising interest in safe-haven assets in developed markets especially USTs as the death toll from COVID-19’s global spread rose significantly.

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