KUALA LUMPUR: Malaysian Rating Corporation Bhd (MARC) expects the gross issuance of Malaysian Government Securities (MGS)/Government Investment Issues (GII) to between RM170bil and RM180bil this year.
“This would be the highest annual gross issuance amount in recorded history,” it said the government issues more debt papers to mitigate the impact of stricter lockdown measures due to the on-going Covid-19 pandemic.
MARC said failure to contain the pandemic, however, will necessitate increasing further the supply of MGS/GII to finance economic support measures in the near term.
“Assuming that total fiscal direct injections reach 2020’s RM55bil, gross issuance of MGS/GII this year could reach between RM200bil and RM210bil,” it said.
During the first half of 2021, MARC said fiscal support to mitigate the impact of stricter lockdown measures caused the gross issuance of MGS and GII to rise by 3.5% on-year to RM80.50bil.
“Consequently, the MGS yield have steepened with yields along the 7y20y curve surged by between 62bps to 79bps while yields along the 3y5y curve surged by between 38bps to 43bps.
“Notably, the expectation of declining buying support from the Employees Provident Fund (EPF) has caused yields to rise,” it pointed out.
MARC said MGS yields have been rising on a steepening bias across all tenures in recent weeks.
It said this trend should continue for the rest of the year. For full year 2021, it expects the benchmark yields on the 10y MGS to reach to between 3.50% and 3.60%.
It attributed this to ongoing debates regarding tapering programmes from global central banks, heightened inflationary pressure, growing new supply of MGS, and waning buying support from the EPF.
As for corporate bonds, it said the gross issuance rose a “staggering” 53% on-year to RM59.5bil in 1H2021.
MARC said this surge can be explained in part by the historical low overnight policy rate of 1.75% — in place since July 2020 — and the expectation of an economic rebound.
For 2021, it said corporate bond issuances will likely come in at between RM100bil and RM110bil (2020: RM104.6bil).
“This assumes that the prospects of an economic recovery remain intact and that business confidence and consequently private investments continue to rise.
“Risks remain tilted to the downside given the spike in Covid-19 cases and prolonged tight lockdowns. A lot will depend on the ongoing vaccination programme and the overall impact of fiscal stimulus packages,” it said.
MARC said concerns have been raised over the government’s weak finances and high debt.
Given the dire economic and social impact from prolonged lockdowns, it thinks that the government has limited policy options at hand.
“Spending on economic support measures should continue amid a negative output gap. As a developing economy, we believe that fiscal austerity can only add further damage to Malaysia’s economic and social fabric, and subsequently our long-term economic progress.
“While many other nations find themselves in the same fiscal boat as Malaysia, the government should be bold in securing the nation’s future prosperity,” it said.