For 2019, we foresee total gross issuance of MGS/GII in the primary market to hover around RM115bil to RM125bil. We derive our projection based on the government’s projection of its fiscal deficit at RM52.1bil and expect higher volume of matured MGS/GII papers at RM69bil (2018: RM62.8bil).

Meanwhile, we foresee foreign appetite to be influenced by uncertainties surrounding the US-China trade, prospects of the USD, Brexit, the US government political gridlock, elections (eurozone, India, Indonesia, Thailand and the Philippines), and the Chinese economic outlook, added with a moderating Malaysia’s growth which will likely affect foreign investors’ demand for local bonds.

In the PDS space, we expect gross issuance to hover around RM80bil to RM90bil. Our projection is based on the notion of: (i) softer public investment growth; (ii) a moderate domestic GDP growth of 4.5%; and (iii) slower pace of global investment. We expect a material decline in the gross issuance of unrated GG and infrastructure-related corporate bonds as a result of the government’s reprioritisation efforts.

Lastly, we believe yields for MGS and corporate bonds would increase slightly from 2018. But we believe the upside in yields will be contained by: (i) a low inflation environment; (ii) a possible OPR cut in view of a moderate economic outlook; and (iii) an expected limited upside of UST yields as the Fed rate hike aggressiveness slows to 1 or 2. On that note, we project yields for the 10y MGS at 4.10% with a +/- 1 standard deviation swing in 2019.

Source: AmInvest Research - 17 Jan 2019