PETALING JAYA: Gross corporate bond issuance is expected to come in at RM70 billion to RM80 billion this year, lower than the RM105.4 billion recorded in 2018, said RAM Ratings.
“This is primarily due to the government’s project rationalisation drive and the lengthening of project implementation time frames. This would dampen new quasi-government debt issue that had previously propped up issuance value in 2017 and to some extent, 2018,” RAM head of research Kristina Fong (pix) said in a statement today.
RAM 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.
However, the government bonds segment does not share the same issuance outlook as gross Malaysian Government Securities/Government Investment Issues (MGS/GII) issuance is anticipated to remain stable in 2019, with a projected range of RM110 billion to RM120 billion, which takes into account the government’s deficit financing needs and the amount of bonds set to mature this year.
RAM also expects foreign bond holdings to remain muted in 2019, given the backdrop of lingering global uncertainties, with some outflow bias on the expectation that the US Federal Reserve 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. The latest dot plot by the Fed shows that it now expects just two rate increases in 2019 compared to the previous forecast of three, a marked reduction from the four hikes in 2018,” it said.
In 2018, gross corporate bond issuance came in at RM105.4 billion, exceeding RAM’s projected range of RM90 billion to RM100 billion, partly supported by large front-loaded issuances in the first quarter, ahead of the expected increase in the Federal Funds Rate in March as well as the sustained momentum of issuance following the 14th General Election for Malaysia.
“That said, the bond market still declined year-on-year in 2018, having come off a bumper year in 2017, when issuance hit a high of RM124.9 billion. On the government bond space, issuance value of MGS/GII remained steady in 2018, having rose a tad bit to RM114.8 billion – which is in line with our expectation of RM110 billion to RM120 billion – from RM113.9 billion of 2017,” RAM said.
According to RAM, foreign investors had largely shorted the Malaysian fixed income market in 2018, as observed by the prevalent net foreign outflow throughout the year.
Note that net foreign selling of bonds amounted to RM21.9 billion in 2018, marking the largest outflow since 2008, when it clocked in at RM35.3 billion.
“This is not a big surprise given the faster pace of global liquidity tightening, along with a surge in investors’ risk aversion as foreign policy direction becomes more uncertain in an era of trade protectionism and myriad geopolitical concerns,” it said.
In addition, the unexpected change in the Malaysian government and a slew of consequent policy changes and resultant uncertainties also affected investor sentiment.
As a result of the stronger selloff, accompanied by the rise in short-term interest rate in the US which place larger upward pressure on shorter-term yields, MGS yield curve ended last year higher and slightly flatter compared to 2017.
