Government bond yields in developed markets bear-steepened significantly in August following the US Fed’s decision to allow inflation to run above its 2% target during the Annual Jackson Hole Symposium. This had led to fears of rising inflationary pressure. Better-than-expected economic data and positive news about the development of a COVID-19 vaccine have also shed demand for the safe-haven government bonds. Meanwhile, in China, the CGB yield curve bear flattened further as expectations of monetary easing continued to decline. Investors remained optimistic about China’s economic recovery following the better-than-expected 2Q2020 GDP data release back in July. CGB yields were also pressured by heavy new supply of short-dated local government bonds worth CNY1.2 trillion. 

In August, the gross issuance of MGS/GII slowed to RM14.5 billion (Jul: RM15.0 billion) as the supply of new MGS papers fell significantly to RM5.5 billion (Jul: RM10.0 billion). Meanwhile, demand for MGS/GII at public auctions weakened with the BTC ratio averaging lower at 1.7x (Jul: 2.4x). MGS yields ended the month mixed with yields along the 1y5y curve falling and further up the curve surging. Short-end benchmark MGS yields, in anticipation of a further cut in the OPR in September, continued to fall. Meanwhile, benchmark MGS yields further up the curve surged on risk-on sentiment due to positive COVID-19 vaccine news, as well as affirmations by the US and China on their commitment to their Phase 1 trade deal. 

Gross issuance of long-term corporate bonds continued to grow, rising to RM8.4 billion in August (Jul: RM7.1 billion). It was driven by the large supply of rated corporate bonds, which amounted to RM7.2 billion (Jul: RM1.7 billion). Long-term corporate bond issuances were mainly driven by the infrastructures and utilities sector, which contributed about 47.8% towards the overall total. Benchmark yields on AAA- and AA-rated corporate bonds, in contrast with those of local govvies, continued to decline, falling by 5bps to 13bps across the curve. As for A-rated corporate bonds, their benchmark yields ended the month higher by 7bps to 9bps. 

In August, MARC affirmed a total of 14 issue ratings from nine different issuers. It also affirmed the FI ratings of CIMB Bank Bhd and CIMB Islamic Bank Bhd, as well as the corporate credit rating of their parent company CIMB Group Holdings Bhd. Except for three issue ratings, the outlook of the affirmed ratings were largely unchanged at stable. MARC also withdrew two issue ratings that were redeemed in full in the same month. Meanwhile, it extended its MARCWatch Negative placement on MEX II Sdn Bhd’s RM1.3 billion Sukuk Murabahah Programme and RM150.0 million Junior Bonds.

The local bond market posted net positive foreign inflows for the fourth consecutive month in August, albeit at a slower pace. Foreign holdings rose by RM3.0 billion (Jul: RM7.1 billion) to RM209.0 billion, equivalent to 13.3% (Jul: 13.1%) of total outstanding local bonds. Local bonds remained attractive to foreign investors given accommodative monetary policies, as well as negative inflation. In July, CPI had declined by 1.3% y-o-y (Jun: -1.9% y-o-y). Garnering most of the inflows, MGS recorded net foreign inflows of RM3.2 billion (Jul: +RM7.7 billion). As of end-August, total foreign holdings of MGS amounted to RM167.8 billion, equivalent to 39.2% (Jul: 38.2%) of total outstanding MGS.