MARC expects government to raise up to RM185b this year

The government’s bond issuances are expected to range from RM175 billion to RM185 billion this year, said MARC Ratings Bhd yesterday.

This is in view of the Finance Ministry’s projected government budget deficit of RM99.1 billion and the RM77.3 billion worth of maturing government bonds (govvies).

Last year, the government raised RM171.5 billion comprising RM86.5 billion of Malaysian Government Securities (MGS) and RM85 billion of Government

Investment Issues (GII). This was 4.7 per cent higher than 2021’s RM163.9 billion and slightly above MARC’s projection of RM160 billion to RM170 billion.

The average issue size for each offering also rose to RM4.8 billion from RM4 billion previously, it added.

“Notwithstanding increased issuances, government bonds in the primary market continued to attract decent demand, though with interest skewed towards GII papers. Worth noting is the RM4.5 billion three-year GII reopening that managed to record a bid-to-cover (BTC) ratio of 4.21 times, the highest since June 2019,” it added.

The average BTC ratio for all public offerings was 2.24x, marginally higher than 2021’s 2.16x.

MARC said government finances, which had been stretched by the Covid-19 pandemic crisis, remained the main risk to its projection.

Based on the 2023 MGS/GII auction calendar, a total of 37 issuances are scheduled, of which 18 will be via MGS and the remaining via GII.

“Given this, we estimate an average issue size of between RM4.7 billion and RM5 billion for each offering.”

Looking ahead, MARC said the global bond market would focus on how long the US Federal Reserve (Fed) would keep interest rates at their peak this year.

Nevertheless, it felt that peaks in interest rates were in sight.

“The Fed has reiterated its commitment to fight inflation that, by its preferred gauge, is currently running at more than double its 2.0 per cent target.

“Given the recent upward revision in its inflation forecast for end-2023 to 3.5 per cent from 3.1 per cent previously, its likely intention will be to maintain high interest rates for a longer period.”

It added that the market, however, was not convinced and had priced in the probability of rate cuts by year end with the implied Fed fund rate falling to 4.54 per cent in December.

“We are leaning towards the expectation that the Fed will ease monetary policy in the fourth quarter to support a faltering economy,” MARC added.