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Contrary to popular
expectations, the bond market has not been rallying while the equities
market tumbled since the March 8 general election. Bonds, also known as
fixed-income securities, were one category of alternative assets that
analysts and fund managers were pointing to as a possible safe haven in the
volatile global and local markets.
Other alternatives were commodities and related stocks and cash. Although
yields on Malaysian Government Securities (MGS) had fallen slightly, bonds
had been largely range bound in the past month. The bond market has been
very lacklustre since the election largely due to foreign funds pulling out
on perceived political risk. As an example, volume on the MGS market over
last week's five trading days was RM3.37bil, while volume on the March 3-7
week was RM5.18bil and it hit RM7.3bil in the Feb 25-29 week. Factors
affecting MGS and Malaysian corporate bonds were very localised.
Meanwhile, the US bond market had also seen a recent sell-off due to an
injection of liquidity into the capital market by the authorities. However,
according to the fixed-income head, the US bonds were driven by very
localised data and other market-related announcements by the US government
that were not necessarily related or particularly relevant to global bond
markets.
The yield on the two-year US Treasury note has risen (meaning a fall in
demand for the bond) to 1.9% from 1.49% in the past month on this excess
liquidity, while the yield on 30-year US Treasury note, mainly driven by
inflation expectations, has gone up slightly to 4.46% from 4.33%. A
fixed-income analyst at another major bank-backed brokerage said that apart
from the oft-quoted political risk factor keeping foreign buyers away in the
past month, investors were also waiting for the ?right primary paper? to
buy. Many investors were waiting for bond issues with the right price and
maturity period for them.
Widening spreads, meaning higher costs, were also causing some issuers to
reduce the size of their offerings. There was also the impact on sentiment
in the market. ?The quieter environment in the bond market will affect their
issues.
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