Published on 19 Dec 2022.
The less hawkish messaging put out by the US Federal Reserve (Fed) in early November reignited interest in local currency emerging market (EM) bonds last month. Foreign investors turned net buyers of MGS and GII in November (RM1.2 bil) after two consecutive months of net selling. This was, however, offset by the outflow from MTB and MITB (RM2.5 bil), which could be attributed to foreign investors’ inability to roll over funds into fresh papers given lumpy maturities and relatively muted new MTB and MITB issuances over the last two months.
Overall fund flows remained negative (RM1.0 bil) in November, although the outflow was much narrower than in October (RM6.3 bil). There were, however, some slight market jitters in mid-December as the Fed dispelled speculations of a potential rate cut next year in spite of the weakening of the US economy. Based on the Fed’s ‘dot plot’ for December, the central bank expects interest rates to reach 5.00%-5.25% in 2023, higher than its projections of 4.50%-4.75% in September.
In the primary market, MGS and GII issuance stayed robust at RM15.0 bil last month. This brings total issuance in 11M 2022 to RM163.0 bil, remaining on track to meet our forecast of RM165 bil-RM175 bil for the year (2021: RM163.9 bil). We project MGS and GII issuance to rise to RM170 bil-RM180 bil in 2023, taking into account the government’s larger deficit financing requirement as well as the refinancing of debts maturing next year.
Corporate bond issuance slowed to RM9.1 bil in November. Totalling RM109.2 bil YTD-November 2022, corporate bond issuance is likely to come in near the upper end of our estimated range of RM110 bil-RM120 bil for this year (2021: RM114.3 bil). For 2023, we expect overall corporate bond issuance to reach RM120 bil-RM130 bil, propelled by private refinancing initiatives, continued infrastructure financing needs and financial institutions’ capital augmentation plans.
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