Market Summary

Yield Movements

Malaysia’s local currency (LCY) government bond yield curve shifted upward across all tenors between 31 August and 15 October. Modest yield increases were seen in maturities of 1 year and below while yields for the remaining tenors climbed higher. The upward movement in yields reflects the diminished buying interest for LCY bonds amid investors’ risk aversion resulting from the escalation of trade tensions and to some extent, the contagion fears from the emerging market rout and the tightening stance of central banks in advanced economies. On the domestic front, the continued weakening of the Malaysian ringgit and concerns over the economy’s fiscal position led to some wariness.

Size and Composition

The size of Malaysia’s LCY bond market barely changed in the third quarter of 2018, expanding a mere 0.7% quarter-on-quarter (q-o-q) to reach MYR1,379 billion at the end of September, with both the government and corporate segments experiencing slower quarterly growth in the third quarter of 2018. Total government bonds outstanding amounted to MYR725 billion on growth of 0.4% q-o-q, and corporate bonds outstanding reached MYR653 billion on growth on 1.1% q-o-q at the end of September. Total sukuk (Islamic bonds) amounted to MYR826 billion or comprising 60% of the LCY bond market. Of which, MYR332 billion are government bonds and MYR493 billion are corporate bonds.

Policy, Institutional and Regulatory Developments

On 17 August, Bank Negara Malaysia announced changes to its foreign exchange administration policies, effective immediately, that include (i) greater flexibility in the management of export proceeds, which allows exporters to maintain their foreign currency trading accounts with onshore banks to meet up to 6 months’ worth of foreign currency obligations without the need to first convert proceeds into ringgit; (ii) flexible hedging of foreign currency obligations; and (iii) wider access for nonresidents to the onshore market financial market, allowing them to trade in MYR-denominated interest rate derivatives via the appointed overseas offices, subject to back-to-back arrangements with onshore banks.

The Securities Commission Malaysia announced on 19 September the liberalization of its regulatory framework to provide greater access for retail investors to Malaysia’s corporate bond and sukuk markets. The liberalized framework will allow a more efficient issuance process for corporate bonds and sukuk to be offered to retail investors, as well as expand the range of corporate bonds and sukuk that can be offered. The regulation came into effect on 11 October.