AmBank Research said it expects a gross issuance target of RM165bil in 2025 compared with RM175bil this year.
PETALING JAYA: As the government looks to reduce its new annual borrowings, there will be a “less heavy” issuance of Malaysian Government Securities (MGS) and Government Investment Issue (GII) next year.
In a note yesterday, AmBank Research said it expects a gross issuance target of RM165bil in 2025 compared with RM175bil this year.
The gross issuance is to be made up of refinancing of RM83.5bil maturing MGS and GII as well as new issuance of RM80bil to finance 2025’s targeted fiscal deficit of RM79.97bil.
“Although we are persisting with the RM165bil target, there is a possibility that gross issuance in 2025 could reach RM170bil to account for refinancing of Treasury bills during the coming year.”
AmBank Research said there will be 36 rounds of auctions for MGS and GII next year, similar to 2024.
This will translate into an auction average of RM4.7bil, which is smaller than the RM4.9bil average in 2024.
Thus, per auction demand may remain firm.
“The average bid-to-cover in 2024 was 2.41 times; which was already an improvement from 2.16 times in 2023.”
The demand outlook assumes a sustained increase in MGS and GII holdings by large investors in the coming year, especially social security institutions, banks and offshore funds.
Data from Bank Negara of the holdings by these three types of investors rose to RM967.5bil in the third quarter of 2024.
This marks a 9.3% increase from RM900bil in the corresponding period the prior year.
“We expect a slightly higher MGS issuance in 2025 vis-à-vis GIIs, given that there is RM46.5bil maturing MGS in 2025 versus a lower RM37bil maturing GII, which could mean more of the refinancing would be for MGS securities,” stated AmBank Research.
The research house further noted that “new monies” are supporting demand for MGS and GII.
Based on available data on general insurance and life insurance companies in the country as well as the Employees Provident Fund, AmBank Research estimated that their total new monies combined was RM153bil as of 2023.
“Assuming the same for 2024-2025, if 20%-30% of the new monies, estimated at RM30bil to RM45bil, are ploughed into MGS and GII, that will already eat up a chunk of the RM80bil net MGS GII issuance estimated for the coming year,” it said.
On the bond or sukuk tenors, the research house opined that the auctions may focus on longer durations.
“We sense that the government may be trying to increase the duration of outstanding MGS and GII by end-2025 from current levels.”
It noted further that in the auction calendar of 2025, the number of auctions for seven-year and 10-year tenors are reduced to four and six respectively, from six and seven auctions in 2024.
“Nevertheless, we expect issuance distribution to remain focused on MGS and GII with five-year up to 10-year tenors and longer maturity GIIs (20-year to 30-year tenors),” it said.
Looking ahead, AmBank Research anticipates MGS and GII curves to remain relatively flat with potential for a modest steepening.
“Hence, our view is that players should focus on auctions of five-year to 10-year MGS and GII and longer dated GIIs – where the bulk of offerings are expected.
“For 2025 and up to the first quarter of 2026, our target for the 10-year and three-year MGS spread is within the 20 to 40-basis point range,” it added.
