Malaysian bond market not significantly impacted amid outflows in August

RAM's head of research Kristina Fong expects Malaysia

PETALING JAYA: The outflow pressure on government bonds did not significantly impact the local bond market in August amid weakness in the ringgit.

RAM Ratings head of research Kristina Fong said despite the geopolitical risks, yield movements were relatively muted with the 10-year Malaysian government securities (MGS) yields falling marginally to an average of 4.05% for the month compared with 4.08% in July, underpinned by domestic support as bid-to-cover ratios mostly kept sturdy above 2.00%.

As such, she noted corporate bond issuance continued to be healthy with RM6.1bil of private sector debt issues in August. 

In comparison, the quasi-government sector saw more muted issuance activity of RM2.2bil and this was mainly attributed to Danainfra Nasional Bhd, the funding vehicle for the ongoing MRT project. 

“We maintain our expectation of relatively benign issuance by this segment on account of the Government’s continued cost rationalisation. To date, overall corporate debt issuance remained higher y-o-y at RM69.9bil compared with RM66.3bil last year – despite more fragile market conditions due to persistent geopolitical and domestic policy uncertainties,’’ she added in a statement on Thursday.

August was a busy month of developments on both the international and domestic fronts, with a couple of trends dominating investors’ portfolio allocations. 

The global scene was still dominated by risk aversion and flight to safety to the US dollar and treasury assets amid escalating trade war rhetoric. 

Additionally, the threatening contagion from troubled emerging markets of Turkey and Argentina along with no clear sign of any abatement in liquidity tightening by the Federal Reserve and the European Central Bank despite these downside risks, also contributed to less buying interest amongst foreign investors. 

As such, with the above scenario the ringgit weakened against the US dollar along with some outflow pressure on government bonds.