The central bank conducted reopening auction for the 20-year MGS (MGS Apr’37). Bid-to-cover for the RM2.5 billion issue was just 1.704 times (versus average of 2.394 times at the 14 government auctions held earlier this year).

20-year MGS auction

• The central bank conducted reopening auction for the 20-year MGS (MGS Apr’37). Bid-to-cover for the RM2.5 billion issue was just 1.704 times (versus average of 2.394 times at the 14 government auctions held earlier this year).
• Demand was lacking despite the attractive spread against the bellies of the curve. We think the recent lack of trading interest along the secondary segment for longer tenor MGS papers especially ahead of market sensitive events (FOMC, UK election, low oil price, and geopolitical risks in Middle East) caused some apprehension amongst players at this week’s auction. The auction average yield was 4.558% (within narrow spread of 4.54-4.576% and WI 4.56/53%) and was well within the market’s pre-existing secondary pricing.
• The RM2.5 billion latest issuance brings the total outstanding amount to RM5.5 billion for the 20-year MGS. We think that the 20-year MGS is fairly valued at 4.558%, still providing a little upside looking at 10x20 spread of 70bps (median spread of 58bps since Jan 2017), but we are wary of potential reversal in MYR and MYR bonds in the near term horizon, pending outcomes from events such as the UK election and FOMC meeting.