KUALA LUMPUR (April 14): Malaysian Rating Corp Bhd (MARC) expects a higher issuance of Malaysian government securities (MGS) and government investment issues (GII) this year, in view of the widening fiscal deficit due to the shortfall in government revenue amid low crude oil prices and the RM35 billion fiscal injection.

In a note, it noted that MGS yields in the secondary market edged significantly higher from early to mid-March, following demand for US treasury bonds by foreign investors.

The pressure on MGS yields started to ease in the final week of March, said the rating agency, amid the various liquidity enhancement measures by Bank Negara Malaysia.

Yields across the curve rose broadly by 15 bps to 68 bps as of end-March, it said.

In March, gross issuance of long-term corporate bonds moderated to RM7.2 billion, from RM10.7 billion in February.

“The primary market for corporate bonds was subdued due to the collapse of global crude oil prices, the worsening Covid-19 pandemic and the subsequent lockdown measures. 

“For 2020, we expect the total gross issuance of corporate bonds to be circa RM95 billion to RM105 billion, lower than 2019’s level (RM132 billion),” said MARC.

It said the forecast is based on the expected contractions in real gross domestic product and private investment, which will affect corporates’ appetite to raise more funds.

Benchmark yields for AAA, AA and A-rated corporate bonds rose by between 36 bps and 56 bps as at end-March, versus falls of between 23bps and 50bps in February.

In March, the agency assigned ratings of AAA/Stable, AA/Stable and B-/Stable to Special Coral Sdn Bhd RM250 million Senior Class A Medium-term Note (MTN), RM50 million Senior Class B MTN and RM800.0 million Subordinated Class MTN under the existing RM1.1 billion MTN programme.

It also affirmed seven issue ratings under seven different issuers.

Meanwhile, foreign investors continued to reduce their holdings of local bonds for the second consecutive month in March, amid risk aversion.

“Net foreign outflows from the local bond market amounted to RM12.3 billion in March, the highest monthly net outflows since May 2018. MGS accounted for most of the outflows (RM12.5 billion) followed by conventional corporate bonds (RM200 million). Cumulative net foreign flows into local bonds year-to-date worsened to RM16.9 billion,” said MARC.