Declining trend in gross issuance for MGS and GII papers
PETALING JAYA: Total outstanding Malaysian Government Securities (MGS) and Government Investment Issues (GII) came in lower for the first time in September since February this year.
According to Malaysian Rating Corp Bhd (MARC), the total outstanding MGS in September was at RM702.2bil compared with RM706.1bil in August.
This was attributed to the declining trend of gross issuance for MGS/ GII papers, which came in at RM8.0bil in September (August 2018: RM9bil) and a significantly high volume of matured MGS papers which amounted to RM11.9bil from zero last month.
Year-to-date (y-t-d), the gross issuance of MGS/GII papers grew by 4.7% year-on-year (y-o-y) to RM89.5bil (2017 y-t-d: RM85.5bil), with the GII-to-MGS ratio coming in at 51:49 (2017 y-t-d: 50:50).
MARC noted that the primary market performance for local govvies was better in September compared with the previous month. The government received total bids of RM18.5bil (August 2018: RM23.4bil) for its targeted RM8.0bil (August 2018: RM9bil) in issuances through three government offerings.
The 30-year GII garnered a decent bid-to-cover ratio of 1.9 times, with support mainly coming from local institutional investors amid news that the United States is seeking fresh trade talks with China.
Meanwhile, both the 10-year MGS and 3.5-year GII saw solid buying interest, with their respective BTC ratios being recorded at 2.7 times and 2.2 times. Demand for both of these issues were supported by lower-than-expected August consumer price index data and increased appetite for emerging-market (EM) assets during the final week of the month.
As for the secondary market, MARC said as at end-September, yields on local govvies were broadly higher month-on-month, with most of the selling pressure concentrated on the short-end of the curve.
Yields on the short-end began to spike during the first week of the month amid ongoing concerns over the global trade war and the EM contagion.
Bank Negara’s dovish Monetary Policy Committee statement and its decision to hold the overnight policy rate at 3.25% had little impact on local govvies during the period.
Yields on local govvies began to ease slightly from the second week onwards amid a moderate August CPI growth of 0.2% y-o-y, firmer global crude oil prices and easing fears of an EM contagion.
However, gains were capped by the escalation of trade tensions between China and the United States, continuing Fed policy normalisation and continuing weakness in the ringgit. The trading volume in September declined to RM59.1bil from RM62.8bil in August.