THE Malaysian Institute of Economic Research trimmed its 2006 growth forecast to 5.2% from 5.5% saying that higher oil prices would curb overseas demand for exports and hence gross domestic product growth.
Inflation rate in June had eased to below 4% after reaching a seven-year high of 4.9% in March. Inflation rate as measured by the consumer price index (CPI) remained unchanged at 3.9% in June (3.9% in May) despite the average 12% electricity tariff hike.
The lower-than-expected inflation rate and growth momentum gave an indication to market players that Bank Negara might let the overnight policy rate (OPR) remain at 3.5%. This was confirmed by the central bank yesterday.
As market players perceived that inflationary pressures had subsided and there was less pressure for Bank Negara to hike up interest rates, there was a buying spree during the early part of this week
Meanwhile, in the Malaysian Government Securities (MGS) market, details of the issuance size for the upcoming three-year MGS reopening were revealed by the central bank on Monday. With an issue size of RM3bil, the re-opening is slated for July 31 with issuance earmarked for Aug 1. This will bring the total outstanding issuance for MV03/09 to RM5.7bil.
In the secondary market, MV03/09, which was traded on a “when issue” basis, was the biggest mover with a total volume of RM590mil. At the end of Thursday, the paper settled at 4.2% from a high of 4.4% and low of 4.1%. Total trading volume for the first four days of the week stood at RM7.6bil against RM5.4bil last week.
Sovereign bond prices were relatively higher during the week, with yields ending lower for most papers, except on Thursday, where yields ended slightly higher ahead of the Monetary Policy Committee meeting.
For the record, bond yields and prices are inversely related. Compared with the previous week, short tenured government securities were the biggest gainers, where yields dropped by 3 to 21 basis points (bp).
The 1.9-year MGS 2C/88 dropped from 4.34% to 4.13%, while the 1.4-year MGS3C/86 declined by 12 bp to 4.1% from the 4.22% levels reported last week.
The medium tenured securities, the 4.8-year MJ 04/11 dropped by 15 bp to close at 4.34%, while the longer tenured 10.2-year MO09/16 ended the week higher at 4.81%, 10 bp lower than last week.
In the private debt securities (PDS) market, average daily trading for the first four days was higher at RM418mil compared with RM268mil last week. There was some buying interest seen, especially for longer dated papers of higher grades, which pressured the yields to trade lower.
Fund flows were skewed towards the AAA segment of 10 years and above maturities. Putrajaya bonds continued to be the favourite pick, especially the long-dated tranches. Putrajaya IMTN July’14 and July’16 both dipped 25 bps and 30 bps respectively to 5.2% and 5.4% from 5.45% and 5.7% the previous week, while Putrajaya IMTN Jan’18 and July’18 both closed at 5.7%. In the AA segment, focus was more on medium-term papers with utilities bonds, such as Malakoff continuing to dominate the trading activity.
Malakoff Oct’09 dropped 40 bps to 5.2% from 5.6% on Monday, while Malakoff Oct’10 turnaround to close lower at 5.65% after rising 50 bps higher at 5.85% on Monday.
In the A segment, interest was mainly on the three-five year papers. SunwayCity Jul’08 made its debut at 6.5%, slightly higher than Damansara Indah Feb’08, which was currently dealt at 6.45%, while the newly issued Sunrise MTN Jul’09 was seen trading at 6.29%, almost 60 bps higher than Bayu Padu Feb’09 of 5.70%.
There were a few ratings assigned during the week, namely Sarawak Power's proposed Serial Sukuk Musyarakah of up to RM215mil (AA1/P1), Symphony House Bhd’s RM100mil CP/MTN (MARC-2ID/AID) and Sunrise CP/MTN with value of up to RM150mil (MARC-1ID/A+ID).
Meanwhile, ABS Land and Properties Bhd’s (“ALP”) RM108.5mil Senior Fixed-Rate Secured Notes were placed under rating watch with negative outlook due to heightened liquidity risk of the transaction, stemming from the slower-than-expected pace of property disposal, as well as the deterioration in the outlook for assets within the portfolio.