KUALA LUMPUR, Sept 8 (Bernama) -- Bursa Malaysia closed almost flat on Tuesday as buying interest rotated away from index heavyweights towards smaller-cap construction stocks, with sentiment affected by geopolitical uncertainty, said an analyst. At 5 pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) eased 0.39 of a point to 1,714.40 from Monday’s close of 1,714.79. The benchmark index opened 1.65 points lower at 1,713.14 and moved between 1,710.44 and 1,714.50 throughout the trading session. The broader market was almost evenly balanced, with decliners leading gainers 548 to 546, while 598 counters were unchanged, 1,107 were untraded and 25 were suspended. Turnover expanded to 4.13 billion units valued at RM3.14 billion from 3.60 billion units valued at RM2.45 billion on Monday.
U.S. corporate credit spreads have hit their lowest levels in nearly two decades, signaling optimism in the market, although some experts warn that investors might be underestimating looming economic risks. The spread on the ICE BofA U.S. Corporate Index, a benchmark for high-grade debt, dropped to 84 basis points this week, its lowest since 2005, down from 92 bps at the end of September.
Similarly, spreads in the ICE BofA U.S. High Yield Index, which tracks junk bonds, dipped to 289 basis points last week, the lowest since March 2007, reflecting strong demand for riskier assets. These spreads indicate the premium investors demand to hold corporate bonds over safer government securities, serving as a gauge of market confidence.
The strong demand for below-investment-grade bonds suggests investors view financial conditions as healthy and are less concerned about corporate defaults. According to Steven Oh, global head of credit and fixed income at PineBridge Investments, the probability of a significant recession is low, supporting the credit market. However, Oh warns of a "level of complacency," with prices not fully reflecting the possibility of a sharper economic slowdown.
The backdrop to this market activity includes rising Treasury yields, which have surged this month as fears of an economic downturn receded following the Federal Reserve’s recent interest rate cuts. The Fed is expected to lower rates further, which reduces the risks around debt refinancing and improves the outlook for companies dealing with high borrowing costs.
Investment-grade bond issuance has surged, with volumes reaching $1.3 trillion this year, a 29% increase over the same period last year. As yields on high-yield bonds approach 7%, some analysts, like Nick Burns of Payden & Rygel, believe junk credit spreads have room to tighten further, offering a cushion against potential spread widening or increased defaults.
Despite the overall optimism, upcoming events such as the U.S. election on Nov. 5 could introduce market volatility. Richard Wolff of Societe Generale CIB advises clients to consider moving funding plans forward to avoid potential difficulties in November.
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