UST yields eased in April amid renewed demand. Demand for USTs was also supported by Biden’s tax hike proposals, growing US-Russia tension, a sharp rise in global COVID-19 cases, and issues over the Johnson & Johnson vaccine distribution. However, selling pressure re-emerged in the final week. The sell-off was spurred by Biden’s proposal of US$1.8 trillion in new spending on education and childcare. In the euro zone, both core and peripheral government bond yields rose in April. This was largely due to the pick-up in pace of the vaccination rollout and continued robust expansion in activity indicators for the region. Meanwhile in the UK, gilt yields ended April mixed. UK gilts at the short end till the belly of the curve edged higher amid growing optimism on the UK’s economy. Meanwhile, UK gilt yields at the long end fell as the UK government scaled back its bond sales plan. In China, the CGB market was supported by a rise in foreign investments in CGBs. Foreign holdings of CGB have expanded by ¥57.1 billion (Mar: -¥16.5 billion) to ¥2,095.1 billion. 

Malaysian Government Bond Market     
      
Gross issuance of MGS/GII decelerated to RM13.5 billion in April (Mar: RM16.5 billion), with MGS worth RM9.0 billion and GII worth RM4.5 billion being issued. Demand for MGS/GII at auctions remained sturdy in April with the one-year BTC remaining at 2.1x. They were supported by declining UST yields, firmer crude oil prices and healthy reception seen in the issuance of Malaysia’s US$1.3 billion USD sustainability sukuk. For 2021, MARC expects gross issuance of MGS/GII to be around RM155.0 billion to RM165.0 billion. Meanwhile, the MGS yield curve flattened significantly in April with the 10y/3y MGS yield spread narrowing to 78bps (Mar: 114bps). From beginning till mid-April, MGS yields along the belly till the long end of the curve fell as demand was largely supported by continuing optimism surrounding FTSE Russell’s reaffirmation of Malaysia’s membership in the WGBI. However, MGS yields started surging during the final eight days of trading in April, mirroring USTs. Yields on both the 3y and the 10y MGS ended the month at 2.37% and 3.15% (Mar: 2.13% and 3.27%). 

Malaysian Corporate Bond Market     
     
Gross issuance of long-term corporate bonds amounted to RM12.7 billion in April (Mar: RM23.8 billion) with a m-o-m decline seen across all segments except for rated corporate bonds. Issuances from rated corporate bond issuers rose to RM10.7 billion (Mar: RM7.3 billion), representing 84.0% of total long-term issuances in April. Investors took more defensive positions in April with trading activities skewed towards quasi-government bonds. Meanwhile, trade volume for the AAA, AA and A-rated corporate bonds as well as the unrated segment has declined. Risk appetite declined amid an extension of mobility restrictions in Malaysia and a resurgence in COVID-19 cases, raising expectations for stricter measures in May.

MARC Rating Activities     
   
MARC assigned two preliminary ratings in April and affirmed a total of five issue ratings. The outlook of the affirmed ratings of the Export-Import Bank of Korea and Special Coral Sdn Bhd remained unchanged at stable. However, the outlook on Senai-Desaru Expressway Bhd’s RM1.9 billion IMTN Programme (Restructured Sukuk, BBB-IS) was revised to negative from stable. There were no rating migrations and withdrawals during the month. Meanwhile, Alpha Circle Sdn Bhd’s and MEX II Sdn Bhd’s issue ratings remained under MARCWatch Negative.

Foreign Holdings of Local Bonds     
     
The local bond market sustained positive net foreign inflows for the 12th straight month in April. Total foreign holdings in April expanded by RM6.4 billion (Mar: +RM5.9 billion) to RM246.1 billion, equivalent to 14.8% (Mar: 14.5%) of total outstanding local bonds. The positive momentum was attributed to the continuing optimism surrounding FTSE Russell’s decision to retain Malaysia in the WGBI and firmer crude oil prices. MGS received most of the inflows in April at RM4.7 billion, accounting for 74.5% of total net foreign inflows. Foreign holdings of MGS amounted to RM189.3 billion, equivalent to 41.0% of total outstanding MGS (Mar: 40.8%).