An auction of Malaysian government bonds drew the weakest demand this year, as traders pared expectations for rate cuts and corporate issuances shifted investor interest away from sovereign debt.
The sale of RM3bil of bonds due in July 2055 got bids totalling RM4.1bil, according to Bank Negara Malaysia. The bid-to-cover ratio fell to 1.38 times, even lower than the September average of 2.06 times, data compiled by Bloomberg showed.
Auction interest was impacted by "a lack of fresh catalysts, while some investors rotate out of government bonds into higher-yielding private debt securities amid a supply wave,” said Winson Phoon, head of fixed-income research at Maybank Securities Pte. "The weak tone may linger until new drivers emerge or yields correct to compelling levels.”
The waning demand comes as traders pare back expectations of further rate cuts. Swaps are pricing a hold over the next six months, compared with their expectations at August-end of 13 basis points of easing over the same horizon. An expected pick up in corporate bond supply in the fourth quarter is also weighing on the demand for the government debt.
An index of top-rated five-year Malaysian corporate bonds offers a premium of nearly 40 basis points over similar-dated government bonds.
Long-tenor bonds are under pressure globally. Investors are awaiting a 40-year sovereign debt sale in Japan Tuesday after pro-stimulus lawmaker Sanae Takaichi’s near-certain elevation as Japan’s next prime minister led to a surge of as much as 17 basis points in the 40-year yield Monday.
Longer-dated bond auctions are expected to see softer demand, as securities with a maturity of 10 years or more will account for the bulk of fourth-quarter issuances, CIMB Bank Bhd. strategists wrote in a note last week. - Bloomberg
