Business

Monday April 20, 2009

Bond issuers should look at retail market too


GIVEN that individual investors have little opportunity to take advantage of the bond market, there should be more issuances of bond funds to get retail investors to participate.

“They used to be popular for one to two years but the interest died since the stock market was more exciting with its high-risk and high-returns profile,” RAM Rating Services Bhd deputy chief executive officer Chong Kwee Siong told StarBiz in Kuala Lumpur recently.

In the region, Hong Kong and Singapore have more of such offerings, which received good take-up rates.

The returns of each bond fund depend on the mandate, horizon of investment and risk profile of the product.

Nonetheless, savers, in the present economic downturn, would want to increase returns without taking on excessive risks, Chong said.

He added that the Government’s first batch of the dual-series RM2.5bil Islamic bonds launched recently received tremendous response.

“The yield for five-year AAA-rated corporate bonds is about 4.5% compared with fixed deposit’s 2%,” he said.

He added that the yield of corporate bonds had changed little compared with 5.1% at end-September.

Meanwhile, the yield of five-year Malaysian Government Securities (MGS) was about 4% as of September, Chong said.

The Finance Ministry complex in Putrajaya. Malaysia’s excess liquidity of some RM200bil will give much leeway to meet the country’s burgeoning supply of debt papers.

“There was a mini rally in December and January, of which the five-year MGS yield dropped to 2.9%. Currently, it’s about 3.6%.”

Bond funds are attractive, given that yields are expected to remain at current levels, assuming that the overnight policy rate (OPR) stays at 2%.

The yield for longer-term papers will be higher due to the risk factor. RAM expects the OPR to gradually fall to 1.25% by year-end.

Chong said the narrowing credit spread between the five-year MGS and AAA corporate bonds to 90 basis points presently from 110 basis points in September reflected the declining risk premium placed on corporate bonds.

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