Global Markets     

In the US, GDP had contracted by 9.5% y-o-y in 2Q2020, the deepest decline recorded. This was mainly due to the sharp contraction in consumer spending as a result of the US government lockdown. On the monetary front, the Fed left its FFR unchanged and affirmed its dovish stance. The euro zone’s GDP also contracted in 2Q2020 by 15.0% y-o-y which exceeded the US’ record plunge. The ECB also left its monetary stimulus programmes unchanged. Meanwhile, the UK economy declined by 21.7% y-o-y in 2Q2020, the steepest decline on record. This was mainly due to the decline in private consumption which accounted for more than 70% of the fall in GDP. In contrast, economic data releases out of China showed signs of recovery, with China’s GDP expanding 3.2% y-o-y in 2Q2020 (1Q2020: -6.8%) amid a rebound in the manufacturing sector. 

The total combined outstanding MGS/GII rose by RM15.0 billion to RM814.5 billion in July. The increase was largely attributed to the large gross issuance of MGS, which rose by RM4.5 billion to RM10.0 billion. Meanwhile, MGS/GII papers tendered at public auctions continued to be well received by investors. The three papers featured in July garnered BTC ratios of more than 2x with an average BTC ratio of 2.4x (Jun: three issues, 2.2x). In the secondary market, MGS have extended their gains after BNM trimmed its OPR to 1.75%. MGS also gained on the Fed’s pledge to hold the FFR near zero as well as the benign inflation outlook in Malaysia. As of end-July, MGS yields across the curve fell broadly by 28bps to 44bps. The 10y MGS shed 32bps to 2.55% (Jun: 2.87%).

Malaysian Corporate Bond Market     

July’s long-term corporate bond issuance rose slightly to RM7.1 billion (Jun: RM6.7 billion). The increase was mainly attributed to a surge in quasi-government issuances which climbed to RM4.5 billion from zero in June. Meanwhile, in the secondary market, benchmark yields for AAA, AA and A-rated corporate bonds fell by between 4bps and 25bps. Trading activities in July were dominated by quasi-government bonds with 43.5% of total trades amid positive news on the revival of several mega infrastructure projects such as the Johor Bahru-Singapore Rapid Transit System link.

MARC Rating Activities     

In July, MARC assigned a final rating of AA-IS to Malaysian Resources Corporation Berhad’s proposed IMTN Programme of up to RM5.0 billion with a stable outlook. MARC also assigned a final rating of AAAIS/MARC-1IS to Gas Malaysia Distribution Sdn Bhd’s proposed IMTN and ICP programmes with a combined limit of up to RM1.0 billion with a stable outlook. In the same month, MARC affirmed a total of 12 issue ratings and revised the outlook on one of the issue ratings to negative from stable. MARC also affirmed the FI ratings of two entities as well three sovereign ratings. Meanwhile, MARC upgraded TSH Sukuk Murabahah Sdn Bhd’s RM50 million Sukuk Murabahah ICP programme rating to MARC-1IS from MARC-2IS amid the issuer’s efforts to improve its liquidity position.

Foreign Holdings of Local Bonds     

Foreign investors continued to be net buyers of local bonds for the third consecutive month in July.  Foreign holdings of local bonds rose RM7.1 billion to RM206.0 billion, equivalent to 13.1% (Jun: 12.8%) of total outstanding local bonds. Foreign demand was spurred by the high-yielding appeal of local bonds as consumer prices in Malaysia stayed benign. MGS accounted for most of the inflows (+RM7.7 billion) followed by MTB (+RM1.0 billion) and GII (+RM0.1 billion).  Foreign holdings of MGS amounted to RM164.6 billion (Jun: RM156.9 billion), equivalent to 38.2% of total outstanding MGS (Jun: 37.3%).