Executive Summary

Budget Balance – Revenue-expenditure combination observed during the budget announcement recently translates into an expected RM93.9 billion of budget deficit which is about 5.0% of GDP as compared to a deficit of 5.6% in 2022.

Sovereign Bond Issuance – Against the backdrop of RM93.9 billion of fiscal deficit expected in 2023 and incoming maturity of RM80.9 billion, we see MGS+GII issuance in the range of RM170 – RM180 billion in 2023.

Corporate Bond Issuance – We maintain our baseline view that corporate bond issuance to be in the range of RM100– RM110 billion.

Demand Side Consideration – Support to come from local institutional investors on sizeable funds and re-investment needs. Demand from foreign investors is expected to increase once there is more clarity on the end US rate hike.

Sovereign Credit Rating – After Fitch Ratings reaffirmed its BBB+ rating with stable outlook recently, we also envisage for the same outcomes by Moody’s (A3 Stable Outlook) and Standard & Poor’s (A- Stable Outlook).

US Policy Rate – Fed Funds rate to peak at 5.50% and no longer expect any rate cut to take place in the US this year.

Malaysia Policy Rate – Still expect 25 bps rate hike on the domestic front to bring the Overnight Policy Rate (OPR) to 3.00% largely due to still high core inflation.

Bond Yields – Maintain our 2023 year-end forecast for 10-year MGS yield in the range of 3.80% – 4.00%.

USD/MYR – Our USD/MYR 2023 year-end outlook at 4.20-4.30 remains unchanged as we still see conclusion of US rate hike by June 2023 and thereafter, investors are likely to see EM currency as attractive again.

Source: AmInvest Research - 27 Feb 2023