Friday 29 Mar 2024
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KUALA LUMPUR (Jan 18): Gross corporate bond issuance for 2018 of RM105.4 billion exceeded RAM’s projected range of RM90 billion to RM100 billion as companies front-loaded issuances in the first quarter, to beat the expected increase in US Fed fund rates in March. Additionally, there was sustained momentum of issuance after the 14th General Election.

However, compared to 2017’s record issuance of RM124.9 billion, the bond market saw a year-on-year decline last year.

In 2019, RAM expects total gross corporate bond issuance to fall between RM70 billion to RM 80 billion, owing to the government’s project rationalisation drive and the lengthening of project implementation time frames by the government.

“This would dampen new quasi-government debt issue that had previously propped up issuance value in 2017 and to some extent, 2018,” notes Kristina Fong, RAM’s head of research in a media statement today.

The rating agency said the change in policy direction could also, in turn, dampen the issuance activities of other infrastructure- and construction-related issuers, as well as the relevant financing entities from the private sector.

The government bonds segment, however, does not share the same issuance outlook as gross MGS/GII issuance is anticipated to remain stable and relatively unchanged in 2019, with a projected range of RM110 billion-RM120 billion, taking into account the government’s deficit financing needs and the amount of bonds set to mature this year.

In 2018, government bond issuance was in line with expectations, RAM said, as the issuance value of MGS/GII held steady. It was only a tad higher to RM114.8 billion — compared to RM113.9 billion in 2017 — and in line with RAM’s RM110 billion to RM120 billion expectation.

In addition, RAM anticipates foreign bond holdings to remain muted this year, given the backdrop of lingering global uncertainties, with some outflow bias on the expectation that the Feds will keep raising interest rates in 2019.

“That said, the outflow this year is unlikely to revisit the levels of 2018, given the anticipated deceleration in the pace of rate hikes, which should moderate the risk of capital flight,” it said, noting the market now expects just two rate increases in 2019, compared with the previous forecast of three. This is also a marked reduction from the four hikes in 2018.

RAM said foreign investors had to a large extent, shorted the Malaysian fixed income market in 2018, which was captured though net foreign outflow during the year. Net foreign selling of bonds amounted to some RM21.9 billion for 2018, constituting the largest outflow since 2008’s RM35.3 billion.

However, it observed that the increased outflow was not surprising, owing to the faster pace of global liquidity tightening, along with a surge in investor risk aversion on the back of uncertain foreign policy direction stemming from an era of trade protectionism and various geopolitical concerns.

Moreover, the change in Malaysia’s government in May 2018 was unexpected, and the policy changes that accompanied the change and uncertainties around those changes also contributed to investor sentiment.

The stronger sell-off, coupled with a rise in US short term interest rates, placed a larger upward pressure on shorter-term yields, with the MGS yield curve in 2018 ending higher and slightly flatter, compared to 2017.

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