UST yields surged in a steepening bias in October on hopes of fresh new fiscal stimulus as polls indicated the possibility of a Democrat sweep in the US Presidential Election. Yields were also up on positive US economic data releases over the month. The 10y UST was last quoted at 0.88% (Sep: 0.69%). In the euro zone, government bonds rallied amid continued resurgence of COVID-19 cases and hints of additional monetary stimulus. The yield on the 10y German bund, for example, fell by 8bps to -0.63% (Sep: -0.55%). In the UK, yields rose on record-high government borrowing and announcement of a fresh fiscal stimulus. The 10y UK gilt settled at 0.30% (Sep: 0.26%) at month end. Meanwhile, in China, CGB yields were broadly higher despite the sharp rise in foreign demand. This was attributed to persistent domestic selling pressure amid growing signs of economic recovery in China.

In October, the total combined outstanding MGS/GII expanded by RM2.8 billion (Sep: RM12.0 billion) to RM823.1 billon. The slower expansion was largely attributed to the larger volume of matured MGS papers. Meanwhile, gross issuance of MGS/GII fell to RM14.5 billion from September’s RM15.1 billion. In the primary market, demand for MGS/GII gained traction, as evidenced by the monthly BTC ratios for all tenders conducted coming in at an average of 2.4x (Sep: 1.9x). Meanwhile, the MGS yield curve steepened as yields at the short end to the belly of the curve fell on heightened expectations of additional monetary easing while yields at the longer end rose on expectations of a heavier supply of govvies next year to fund expansionary fiscal measures. For 2021, we project the MGS/GII issuance to come in at between RM150.0 billion and RM160.0 billion.

The gross issuance of long-term corporate bonds surged in October to RM16.2 billion (Sep: RM9.0 billion), the highest monthly issuance YTD. The surge was due to expectations of prolonged low interest rates and prospects of gradual economic recovery in 2021. It was led by issuances from rated corporate bond issuers that amounted to RM10.0 billion (Sep: RM2.8 billion). In the secondary market, yields on investment grade corporate bonds were broadly lower across the “AAA”, “AA” and “A” rating bands. However, credit spreads for 3y and 5y tenures widened given that yields on similar tenured MGS had fallen more sharply. 

In October, MARC assigned five preliminary ratings to sukuk programmes by Evyap Sabun Malaysia Sdn Bhd (AA-IS/Stable), Sime Darby Property Bhd (AA+IS/Stable), Sparks Energy 1 Sdn Bhd (AA-IS/Stable), Sunsuria Bhd (A+IS/Stable), and Guan Chong Bhd (AA-IS/Stable). MARC also assigned final ratings of AAAIS/Stable to Pengerang LNG (Two) Sdn Bhd’s proposed RM3.0 billion IMTN programme and Bank Pembangunan Malaysia Bhd’s RM5.0 billion IMTN programme. In the same month, MARC affirmed a total of 10 issue ratings from nine different issuers and downgraded the outlook of one of them to negative from stable. MARC also affirmed Sime Darby Plantation Bhd’s corporate credit rating, South Korea’s sovereign rating and the FI ratings of Bank Pembangunan Malaysia Bhd, International General Insurance Co Ltd and SME Bank Bhd.

Net foreign buying of local bonds continued in October at a faster pace amid yield-hunting activities as interest rates in advanced economies remained ultra-low. This resulted in the local bond market posting net foreign inflows of RM8.0 billion (Sep: RM0.5 billion), thus taking total foreign holdings to RM217.5 billion (Sep: RM209.5 billion) or equivalent to 13.7% of total outstanding (Sep: 13.2%). The bulk of the foreign inflows went into MGS, followed by GII and MTB. MGS recorded net foreign inflows of RM3.9 billion (Sep: +RM1.4 billion), thus taking foreign holdings of MGS to RM173.2 billion (Sep: RM169.2 billion). This is equivalent to 40.3% (Sep: 38.8%) of total outstanding MGS.