TheEdge
KUALA LUMPUR: Malaysian bonds are expected see a price slide as yields grind upwards this year, exacerbated by the country’s political uncertainties and rising inflation globally.
Bond analysts said like the country’s equity market, Malaysian bonds’ attractiveness had diminished after Barisan Nasional lost five states to the Opposition at the recent general elections, causing uncertainties in the country’s political landscape.
“Bondholders are holding back as they are waiting for clarity in the country’s political scene, especially on the party leadership of Umno,” an analyst told The Edge Financial Daily yesterday.
He, however, did not expect the Malaysian government to arrive at a solution to appease bondholders’ jitters in the immediate term, as Umno had decided to have its annual general meeting to elect its party leaders only in December.
The bond market jitters were exacerbated by rising inflation in the region, as countries continued to battle higher prices of food including rice, wheat and milk.
An analyst said: “Fixed income holders hate inflation, and although Malaysia’s inflation rate is still under control, we do not know when rising food prices, which contribute to higher inflation rates, will recede.”
“Although the government had reiterated that it would not raise oil prices at the moment, consumers are most likely to suffer from a transparent price hike in oil as well as in food,” he said.
Additionally, he said both three-year and five-year government bonds were currently trading below the overnight policy rate (OPR) of 3.5%, but the situation would not be sustainable if Bank Negara Malaysia does not reduce the OPR.
However, bondholders would be more concerned with the rising inflation than the OPR, the analyst said, adding that another concern that bondholders raised were the sudden influx of Korean and Indian issuers into the country’s bond market causing a widening of credit spread.
The trend of foreign issuers raising funds in the Malaysian market had become apparent since the first issue by Middle Eastern multilateral institution Gulf Investment Corporation (GIC), which was rated AAA+ by Ratings Agency Malaysia Bhd and were oversubscribed by 2.76 times in mid-January.
The Edge Financial Daily had earlier reported that more foreign issuers were raising debt papers here, as it was cheaper to do so, but local industry players were concerned that these issuers’ entry would pose more difficulty for local issuers to issue papers cheaply.
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