Global Markets     

The worsening COVID-19 pandemic has resulted in governments restricting the movement of its citizens to contain the spread of infection. Policymakers also unveiled large-scale stimulus measures to cushion the economic impact of the pandemic. In the US, the Fed introduced broad QE programmes with unlimited commitment to purchase USTs and MBS. In Europe, the ECB announced its own massive QE in March worth EUR870.0 billion to buy corporate and government bonds of the hardest hit euro zone countries. In the UK, the BoE cut interest rates to an all-time low of 0.1% and added GBP200.0 billion to its QE programme. Meanwhile, in China, easing measures have been modest.

Gross issuance of long-term local govvies accelerated in March to RM16.8 billion (Feb: RM12.0 billion) – the highest monthly issuance in history. We expect gross issuance of MGS/GII for 2020 to be significantly higher than last year at between RM140.0 billion to RM150.0 billion. This is in view of the widening fiscal deficit amid the shortfall in government revenue due to low crude oil prices and the RM35 billion fiscal injection. In the secondary market, MGS yields edged significantly higher from early to mid-March amid aggressive safe haven bids for USTs by foreign investors. Pressure on MGS yields started to ease in the final week as BNM introduced various liquidity enhancement measures. As of end-March, MGS yields across the curve rose broadly by 15bps to 68bps. 

Gross issuance of long-term corporate bonds moderated to RM7.2 billion in March (Feb: RM10.7 billion). The primary market for corporate bonds was subdued due to the collapse of global crude oil prices, the worsening COVID-19 pandemic and the subsequent lockdown measures. For 2020, we expect the total gross issuance of corporate bonds to be circa RM95.0 billion to RM105.0 billion, lower than 2019’s level (RM132.0 billion). Our forecast is premised on the expected contractions in real GDP and private investment which will affect corporates’ appetite to raise more funds. As of end-March, benchmark yields for AAA, AA and A-rated corporate bonds rose by between 36bps and 56bps, compared with February’s fall of between 23bps and 50bps.

In March, MARC assigned ratings of AAA/Stable, AA/Stable and B-/Stable to Special Coral Sdn Bhd’s RM250.0 million Senior Class A MTN, RM50.0 million Senior Class B MTN and RM800.0 million Subordinated Class MTN under the existing RM1.1 billion MTN programme. MARC also affirmed seven issue ratings under seven different issuers, the FI ratings of CGC and KEXIM, as well as the AAA/Stable sovereign rating of China. At end-March, PLUS’ AAAIS/Stable rating on its RM23.35 billion Sukuk Musharakah Programme remained on MARCWatch Developing. 

Foreign investors continued to reduce their holdings of local bonds for the second consecutive month in March as they remained aggressively risk averse. Net foreign outflows from the local bond market amounted to RM12.3 billion in March, the highest monthly net outflows since May 2018. MGS accounted for most of the outflows (-RM12.5 billion) followed by conventional corporate bonds (-RM0.2 billion). Cumulative net foreign flows into local bonds YTD worsened to -RM16.9 billion (1Q2019: +RM5.1 billion).