MGS, GII issuances up 3.5pc to RM80.5b in H1, says MARC

KUALA LUMPUR: Fiscal support to mitigate the impact of stricter lockdown measures has led to the gross issuance of Malaysian Government Securities (MGS) and Government Investment Issues (GII) rising by 3.5 per cent yearon-year to RM80.5 billion in the first half of the year.

Notably, expectation of declining buying support from the Employees Provident Fund (EPF) has caused yields to rise.

The Malaysian Rating Corporation Bhd (MARC) said MG S yields had risen across all tenures in recent weeks.

“Given ongoing debates regarding tape ring programmes from global central banks, heightened inflationary pressure, growing new supply of MGS and waning buying support from the EPF, this trend should continue for the rest of the year.

“For full-year 2021, we expect the benchmark yields on the 10year MGS to reach between 3.50 and 3.60 per cent.”

Based on current developments, the rating agency expects the gross issuance of MGS/GII to come in at a record RM170 billion to RM180 billion this year.

Further, MARC noted that failure to contain the Covid-19 pandemic would necessitate increasing the supply of MGS/GII to finance economic support measures in the near term.

Assuming that total fiscal direct injections would reach last year’s RM55 billion, gross issuance of MGS/GII could reach between RM200 billion and RM210 billion this year, it said.

Meanwhile, the gross issuance of corporate bonds rose a staggering 53 per cent year-on-year to RM59.5 billion in the first half.

This increase is explained in part by the historically low Overnight Policy Rate of 1.75 per cent — which has been in place since July last year — and the expectation of an economic rebound.

Corporate bond issuances would likely come in between RM100 billion and RM110 billion, compared to RM104.6 billion last year. it noted. “This assumes that the prospects of economic recovery remain intact and that business confidence and private investments continue to rise.”

Concerns have been raised over the government’s weak finances and high debt.

“Given the economic and social impact of prolonged lockdowns, we think that the government has limited policy options at hand.

“Spending on economic support measures should continue amid a negative output gap.

“We believe that fiscal austerity can only add further damage to Malaysia’s economic and social fabric,” said MARC.