RESEARCH REPORT

Monthly Bond Market and Rating Snapshot - April 2020

Report ID 60530 Popularity 232 views 13 downloads 
Report Date May 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     

The 1Q2020 US real GDP expanded at its slowest pace since the GFC by 0.5% as the COVID-19 outbreak took a toll on the economy. Last month, the US recorded the largest number of COVID-19-related cases and deaths in the world. In Europe, PMI for the manufacturing sector slumped to more than a decade low as non-essential businesses were either shuttered or faced multiple economic challenges. In the UK, consumer sentiment worsened to an all-time low while manufacturers expect output to continue to fall in the next three months. In China, the 1Q2020 real GDP contracted by 6.8%, driven by a broad-based decline on the supply side. The financial and economic impact caused by COVID-19 resulted in a notable decline in international reserves and a record high liquidity.
 
Malaysian Government Bond Market   

Gross issuance weakened to RM14.0 billion in April after recording the highest monthly issuance in history of RM16.8 billion in March. This brought the 2020YTD (Jan-Apr) issuance to RM52.8 billion (2019YTD: RM47.0 billion). In tandem with the fall in yields across the maturity spectrum, demand for government securities issued in March broadly improved. In the secondary market, MGS yields ended April lower by 34bps to 58bps to their lowest levels YTD on heightened expectations of further reductions in the OPR by BNM during its scheduled MPC meeting on May 5. MGS were also supported by signs of lessening COVID-19 infection rates in Malaysia, the recovery in global crude oil prices as well as the Fed’s pledge to keep interest rates near zero and continue its asset purchasing programmes.
 
Malaysian Corporate Bond Market 

In April, gross issuance of long-term corporate bonds declined for the third consecutive month to RM3.1 billion (Mar: RM7.2 billion) amid significant lower issuances across all segments except for the Cagamas bond segment which rose to RM0.5 billion (Mar: RM0.4 billion). The primary market for corporate bonds was subdued by the extension of the MCO in Malaysia, which stymied economic activity. YTD, gross issuance amounted to RM25.1 billion (2019YTD: RM37.5 billion) with rated corporate bonds (excluding Cagamas) being the largest contributor with RM8.6 billion. In tandem with local govvies, benchmark yields on investment-grade corporate bonds also fell in April. Benchmark yields for AAA, AA and A-rated corporate bonds fell by between 25bps and 61bps, in contrast with March’s increase of between 36bps and 56bps.
 
MARC Rating Activities 

In April, MARC assigned a preliminary rating of A+IS /Stable to Tropicana Corporation Bhd’s proposed RM1.5 billion IMTN Programme. MARC also assigned final ratings of MARC-1/AA- to Sunway Bhd’s RM2.0 billion CP/MTN Programme. In the same month, MARC reaffirmed 11 issue ratings under eight different issuers and revised the outlook on one issue rating from negative to stable. There were no rating migration activities. Additionally, MARC extended its MARCWatch Developing placement on PLUS’ RM23.35 billion Sukuk Musharakah Programme which carries a rating of AAAIS /Stable.
 
Foreign Holdings of Local Bonds 

Foreign selling pressure of local bonds eased in April but foreign investors remained as net sellers of local bonds. In April, net foreign outflows from the local bond market amounted to RM2.0 billion (Mar: RM12.3 billion), bringing the total foreign holdings lower to RM185.8 billion (Mar: RM187.8 billion). GII accounted for most of the outflows (RM1.9 billion). Foreign holdings of GII amounted to RM18.6 billion (Mar: RM20.5 billion), equivalent to 5.3% (Mar: 5.7%) of total outstanding GII. The first four months of this year saw total net foreign outflows of RM18.8 billion (Jan-Apr 2019: -RM4.7 billion, 2019: +RM19.9 billion) from the local bond market.
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