Bond market shifts as government sales ease, corporates pick up pace
Fitch Ratings said the moderation stems from the country's fiscal plan, with the budget deficit on track to meet the 3.8 per cent of gross domestic product target for 2025.
However, it noted that substantial corporate debt maturities and rising bank funding needs could drive a rebound in issuance, supporting overall DCM activity.
"The first overnight policy rate cut in five years, lowering the rate to 2.75 per cent in July 2025, may boost non-sovereign issuance further," it said.
Fitch Ratings currently rates US$14.8 billion worth of Malaysian sukuk, all of which hold investment-grade ratings with issuers on stable outlooks.
As of the first half of 2025, local DCM stood at US$580 billion in outstanding value, 92 per cent denominated in ringgit. Sovereign issuers accounted for 60 per cent, while sukuk made up 59 per cent of the total.
Fitch said total DCM issuance fell 27 per cent year-on-year to US$41.1 billion in the first half of 2025, with the sovereign share almost halving to 36 per cent.
While sovereign issuance dropped 63 per cent compared to the previous year, bank and corporate issuance climbed 65 per cent.
The agency noted that DCM growth could face headwinds from factors such as ringgit volatility, interest rate shifts, commodity price swings, US tariff actions, and global geopolitical tensions.
Fitch Ratings global head of Islamic Finance Bashar Al Natoor, said Malaysia remains the world's leader in outstanding sukuk volumes, with one of the most advanced DCMs among emerging markets and the third largest in Asean.
"Domestic investors remain diverse and hold most of the DCM. However, foreign investors' appetite is rising, with a ringgit DCM share of nearly 14 per cent, and is mainly through government bonds.
"Foreign holdings of sukuk are still lower than bonds, partly due to GCC Islamic banks' sharia compliance requirements and limited hedging and repo options," he said.
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