Wednesday, December 7, 2011

Malaysia Fixed Income Market Review, 29 November - 2 December 2011

Fixed Income
Buying momentum on Malaysian Government Securities (MGS) improved during the week under review, on the back of a stronger Ringgit and improved risk appetite along regional stock and debt markets. Gains were recorded mostly along the front and bellies of the yield curve with the 3-, 5- and 7-year benchmark yields falling by 9, 6 and 4 basis points week-on-week (WoW) respectively to 3.05%, 3.24% and 3.54%. Meanwhile, the 10-year benchmark MGS yield fell by 1 basis point WoW to 3.74%. For the 5-year MGS reopening auction, the RM3.0 billion auction garnered rather mild interest, with a bid to cover ratio of 1.78x at an average yield of 3.303%.

Of note, the foreign holdings of Ringgit-denominated MGS climbed higher in October at RM94 billion (34% of the outstanding MGS) after some unwinding of positions in September.

For Private Debt Securities (PDS) market, trading was largely focused on AA-rated papers, and followed by AAA-rated papers. Banking and power sectors remained as investor’s top pick.

Fixed Income Outlook
Local government bond market will continue to take hints from the development in the Eurozone and the US Treasuries in charting its direction. On economic front, despite the expectation of a moderating growth prospect in Malaysia for the last quarter of the year, the Economic Transformation Programme and a healthy domestic spending, should help to achieve the projected 5-6% Gross Domestic Product (GDP) growth for 2011.

As for the final government bond auction for this year, we believe the 3-year Government Investment Issues (GII) reopening auction should be well received. Meanwhile, investors are waiting for the new auction calendar for 2012 to better gauge demand supply dynamics of the government bond segment for next year.

We expect corporate bond market to be well supported for the rest of the year and investor may continue to extend duration on tame inflation and stable interest rate outlook.

Fixed Income Strategy
We remain positive on local bond market in general with focus on value enhancing corporate bonds. We look to participate in new issuances for further diversification and yield enhancement.

Source for MGS levels: Bond Pricing Agency
Source: ING Funds Berhad

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