Malaysian companies are facing a shift away from the era of cheap debt as global interest rates rise, but financing through the local bond market is expected to remain active despite higher borrowing costs. The US Federal Reserve’s recent 25-basis-point increase in its benchmark interest rate—raising the federal funds target range to 3.75% to 4%—marked its first hike since 2023 and helped drive a broader upward trend in global yields.

The 10-year US Treasury yield rose nearly one percentage point this year, reaching 5.17% as of late September, while Malaysia’s 10-year Government Securities (MGS) yield increased more moderately by 44 basis points to 3.94%. Analysts say this relative difference suggests the impact of rising rates on Malaysian corporate borrowing costs will be manageable. Kevin Khaw Khai Sheng, assistant manager of research at iFast Capital, noted that although bond yields are climbing, companies with existing financing arrangements should not feel significant pressure.

“On a relative basis, yes, it’s rising. But I would see the impact as negligible,” Khaw said. He added that new corporate bond issuances continue despite the increasingly expensive funding environment, indicating sustained access to capital in the domestic market.

Similarly, Imran Yassin Yusof, head of research at MBSB Research, observed that business loan demand remains steady. He pointed out that US interest rate changes do not directly translate to higher ringgit borrowing costs, as local corporate bonds and sukuk benchmarks are tied to MGS and Government Investment Issues (GII), while bank lending rates are more closely linked to Bank Negara Malaysia’s overnight policy rate (OPR).

Both Khaw and Imran expect Bank Negara Malaysia to maintain the OPR at its current level of 2.75% for the remainder of the year, regardless of the Fed’s policy moves. They cited domestic factors, including moderate inflation and solid economic growth, as support for this stance. Malaysia reported 1.9% year-on-year headline inflation in August and 6% GDP growth for the second quarter, bringing first-half annual growth to 5.7%.

Despite the current environment, experts warn that the period of low-cost borrowing has likely ended. A recent report by BIMB Research projects the 10-year MGS yield will average between 3.9% and 4% over the next 12 to 18 months, reflecting a "higher for longer" global interest rate outlook. This marks a departure from the past two years, when average 10-year MGS yields hovered around 3.58%, enabling record corporate bond and sukuk issuance totaling RM216.5 billion over the prior year.

BIMB Research cautioned that tighter credit conditions could challenge highly leveraged and capital-intensive sectors, including utilities, property, telecommunications, construction, healthcare, and real estate investment trusts (REITs). Companies such as Tenaga Nasional Bhd, Axiata Group Bhd, CelcomDigi Bhd, Gamuda Bhd, and Pavilion-REIT were highlighted as particularly exposed to rising rates.

Conversely, technology firms may be less vulnerable due to strong cash positions and growth opportunities linked to the artificial intelligence sector, which could help offset funding pressures. The research house also noted a potential shift back toward bank loans as companies look for more cost-effective financing alternatives, benefiting corporate banks amid a relatively stable overnight policy rate and a possible steepening in the yield curve.

Khaw emphasized that while borrowing costs are increasing, the elevated yield environment creates attractive opportunities for fixed-income investors seeking steady income streams. “This is a very good time for investors to take a look at the bond market,” he said, underscoring the appeal of bonds in a higher-rate landscape.