KUALA LUMPUR: Malaysia will sell 30-year bonds for the first time in its longest-maturity offering to set a benchmark for companies raising funds under Prime Minister Najib Razak's US$444 billion (RM1.43 trillion) development programme.
The government will sell RM2.5 billion of 2043 notes today, according to Bank Negara Malaysia's website. Pre-market trading showed bid to offer yields were 4.35 to 4.75 per cent yesterday, said Michael Chang, head of fixed-income at MCIS Zurich Insurance Bhd, here.
Similar-maturity US Treasuries were paying 3.67 per cent and 30-year Thai debt 4.6 per cent, data compiled by Bloomberg show.
The maturity extension will add more depth to the region's biggest bond market given that Thailand and Indonesia already have debt maturing in 30 years or beyond, Chang said.
Highway operator PLUS Bhd is only the second Malaysian company to have issued securities due in more than 25 years, along with sovereign wealth fund 1Malaysia Development Bhd, as the prime minister embarks on a 10-year spending spree to build roads, railways and power plants.
"The offering will help facilitate project financing," said Soo Seohan, head of debt capital markets at AmInvestment Bank Bhd, Malaysia's second-biggest bond arranger this year, on Wednesday. "Demand will be there given that insurance companies and pension funds need to match their assets with liabilities."
Chang said he's keen to buy the debt because it's an inaugural issue.
Yields on 20-year notes, currently the longest government maturity in Malaysia, are falling three times as fast as rates on three-year debt this month. Long-term securities are more sensitive to expectations for consumer prices, which rose 1.9 per cent in August, compared with two per cent in July and 1.2 per cent in December when the 30-year bond plan was announced.
The extra yield investors demand to hold the 20-year government notes over those due in three years narrowed 24 basis points to 78 in September, according to data compiled by Bloomberg. That's down from this year's high of 120 on September 4.
"Given that inflation is expected to rise further, we would only be interested in the 30-year bonds if the yields are above five per cent," said Lam Chee Mun, a Kuala Lumpur-based fund manager at TA Investment Management Bhd, which oversees around RM650 million.
"At the moment, we feel that other asset classes give better returns."
"Longer-term bonds are more viable for countries building infrastructure because you get a maturity mismatch if your fund-raising is in the short end," said Iwan Azis, head of the Asian Development Bank's regional economic integration office in Manila, on Monday.
"If Malaysia is doing successfully, then I'm pretty sure other neighbouring countries will follow suit," Iwan said.
Thailand sold 50-year debt, Southeast Asia's longest-maturity sovereign notes, in December 2010. The maximum government debt duration in the Philippines is 25 years and 15 in Vietnam, data compiled by Bloomberg show. In Singapore, it's 30 years. Those bonds yielded 3.16 per cent on Wednesday, compared with 3.51 percent at the end of August.
Malaysia had US$314 billion of debt outstanding as of June 30, compared with US$286 billion in Thailand, US$118 billion in Indonesia and US$95 billion in the Philippines, according to Asian Development Bank (ADB) report this week.
"Malaysia's 30-year bond will extend the yield curve and deepen the local market," said Jason Chong, who oversees US$1 billion as chief investment officer at Manulife Asset Management Services Bhd. Bloomberg