KUALA LUMPUR (July 21): MARC Ratings Bhd foresees total corporate bond issuances to hover in the range of RM100 billion to RM110 billion in 2022, driven by robust economic recovery in the second half of 2022 (2H22).

Notwithstanding this, the elevated level of government debt and stretched public finances derived from the pandemic will weaken quasi-government debt issuances on top of the hawkish interest rate environment, said the rating agency in a statement on Thursday (July 21).

Foreign inflows into the local bond market would remain pressured for the rest of the year, said MARC, amid market expectations of interest rate hikes by the US Federal Reserve and narrowing yield premium between US Treasury and Malaysian Government Securities (MGS).

While there could be renewed turbulence, the rating agency believes that the rise in local government bond yields would not be too significant given the critical support from local institutional investors.

Thus, MARC expects the 10-year MGS yield to rise to a peak of 4.4% by the end of 2022.

"Based on the government's projected 2022 fiscal deficit of RM97.5 billion, the matured MGS/GII (Government Investment Issue) amounting to RM28.5 billion in 1H22, as well as the upcoming MGS/GII maturities of RM45.7 billion in 2H22, we foresee that the gross MGS/GII issuance will amount to between RM170 billion and RM180 billion for the whole of 2022.

"Nevertheless, the upside potential for the forecast remains due to the expected higher government spending given the economic recovery phase and rising subsidy bills in tandem with higher commodity prices," it said.

While the trend of negative rating actions outpacing positive ones persisted in 1H22, MARC sees the majority of issuers in its rated universe continuing predominantly on stable rating trajectories moving forward.

This, it said, is notwithstanding the tightening financial conditions, higher input costs and labour shortages, which could derail recovery prospects and undermine corporate margins.