PETALING JAYA: The days of cheap debt may be coming to an end for Malaysian companies as global bond yields rise, but higher funding costs are unlikely to stop them from tapping the local bond market.
The US Federal Reserve’s (Fed) 25-basis-point interest rate hike earlier this month lifted its federal funds target range to 3.75% to 4%, putting global interest rates on a higher trajectory.
It was the first rate increase by the United States central bank since 2023.
iFast Capital assistant manager of research Kevin Khaw Khai Sheng said the impact on Malaysia’s corporate debt market was likely to remain “manageable”, noting that the increase in Malaysian yields had been relatively modest compared with the rise in US Treasury yields.
The 10-year US Treasury yield rose to 5.17% as at Sept 25 from 4.19% at the start of the year, an increase of 98 basis points.
By comparison, the 10-year Malaysian Government Securities (MGS) yield rose by 44 basis points to 3.94% from 3.5% over the same period.
Khaw said higher yields would inevitably raise the cost of issuing new bonds, but the increase so far was unlikely to have a significant impact on companies that already had financing plans in place.
“On a relative basis, yes, it’s rising. But I would see the impact as negligible,” he said.
Khaw said Malaysian corporates were also continuing to tap the domestic bond market despite the higher yield environment, suggesting that financing conditions remained manageable.
“We do see some new bonds issuance, despite the current yield environment, so that’s why we do think that the impact is quite negligible overall.”
Similarly, MBSB Research head of research Imran Yassin Yusof said there had yet to be a meaningful pullback in loan demand among businesses.
He said a US rate hike would not directly translate into higher borrowing costs for Malaysian companies, as the benchmarks for corporate bonds and sukuk were MGS and Government Investment Issues (GII) yields, while corporate borrowings from banks were more closely linked to the overnight policy rate (OPR).
“Therefore, a hike in the United States may not directly affect ringgit borrowing costs,” he said.
For the OPR, Imran expects Bank Negara Malaysia to leave the benchmark rate unchanged at 2.75% for the rest of the year.
Khaw likewise expects the central bank to maintain the OPR at 2.75% for the rest of the year, despite the Fed’s recent rate hike and expectations of another hike later this year.
“Malaysia’s monetary stance is quite independent compared to the Fed. Although in the longer term, we are moving in tandem,” he said.
Khaw said domestic economic conditions remained supportive of maintaining the current policy stance, citing inflation and gross domestic product growth.
Malaysia’s headline inflation rose 1.9% year-on-year in August, while gross domestic product grew 6% year-on-year in the second quarter of 2026, bringing first-half growth to 5.7%.
With the OPR expected to remain unchanged, Khaw expects the domestic yield environment to stay broadly around current levels for the rest of the year.
Meanwhile, in a report yesterday, BIMB Research said it sees “an end to cheap debt”, as it expects the 10-year MGS yield to average between 3.9% and 4% over the next 12 to 18 months as the global rate outlook shifts towards “higher for longer”.
It expects the 10-year MGS yield to end 2026 at around 3.9% and drift towards 4% by end-2027.
This comes after a period of relatively low borrowing costs that fuelled a surge in corporate debt issuance.
The research house said MGS yields averaged 3.58% over the past two years, with the 10-year yield falling as low as 3.36%.
Against this backdrop, it said corporate bonds and sukuk issuance reached a record RM216.5bil over the past 12 months.
“But this is likely to change as global rates outlook shifts to higher for longer, and pushing MGS 10-year yields as high as 4.18% recently before it moderated,” it said.
“Broadly, we expect to see tightening credit conditions for corporates – hurting those with unhedged floating rate exposures as well as corporates that have high incoming debt issuances and requirements and those looking at maturing debt.”
BIMB Research said capital-intensive sectors and highly leveraged companies would face greater relative risks to earnings, particularly if higher borrowing costs are compounded by weaker credit profiles.
The research house’s screening of 85 of the largest corporate balance sheets, excluding financial institutions, found utilities, property, telecommunications, construction, healthcare and real estate investment trusts (REITs) among the sectors more exposed to higher rates.
Among the companies that topped its screening were Tenaga Nasional Bhd
, Axiata Group Bhd, CelcomDigi Bhd, Gamuda Bhd and Pavilion-REIT.
Technology companies, meanwhile, could be relatively less affected, BIMB Research said, as most of the stocks in its screening have net cash positions.
“Coupled with the cyclical artificial intelligence (AI) earnings tailwind and the relative lack of intensive capital expenditure plans of the true AI-data centre players, we see this as a key rotation sector into the coming era of elevated rates,” it said.
The research house also sees potential for corporate banks to benefit if companies increasingly turn to bank loans instead of bonds and sukuk for financing, particularly if the short end of the yield curve remains contained by an unchanged OPR.
“We see corporate banks as the relative beneficiary within the sector – from the potential upside of steepening yield curves as well as the rotation from bonds and sukuk back into loans,” it added.
While higher yields could raise funding costs for corporate bond issuers, Khaw said the elevated yield environment could also create opportunities for investors in the fixed-income market.
“This is a very good time for investors to take a look at the bond market,” he said, adding that bonds could appeal to investors seeking more “predictable cash flows”.
