Fixed Income

Global Bonds: Global bond markets weakened last week. Bond traders trimmed further their interest rate cut outlook following the robust non-farm payroll data the Friday prior and continued upside surprise in US economic data last week. The ISM Services PMI index at 53.4 in January 2024 was notable versus December’s 50.5 level (and consensus expectation of 52). This was aided by Fed officials’ comments, which were slanted towards the hawkish side. Last week saw the 10Y UST up 16 bps to 4.18%, the highest rate since December.

Malaysian Government Bonds: In the onshore bond market, the MGS and GII held their ground throughout the week and closed mixed with buying interests on shorter and ultra-long tenors despite the weaker sentiment in global bonds. The 10Y MGS closed at 3.81%, which is relatively stable compared to the prior week’s closing of 3.78%. Malaysia’s economic data provided a mixed picture of the upcoming months' prospects. The industrial production index (IPI) fell by a slight 0.1% during December 2023, after a 0.6% y/y growth in the prior month. On the other hand, retail sales posted faster growth at 5.0% y/y during the same month, up from 4.4% y/y in November 2023.

Malaysian Government Bonds View: We think external markets will primarily guide sentiment. However, if MYR shows any slight rebound or UST yields show a dip after its month-long increase, we should see support for MGS and GII this week.

Malaysian Corporate Bonds: We saw investors supporting the ringgit corporate bond market. Despite the mixed MGS segment, we think that a mix of yield hunting and sustained early-year interest for bonds (investors picking up bonds arising from fresh buy mandates) contributed to the PDS market gains last week. Last week saw corporate spreads tighter by up to 5 bps on the front to the bellies of the curves.

Malaysian Corporate Bonds View: We foresee investors focusing on higher-grade names, especially those in strong sectors such as infrastructure and utilities. Cash flows of these corporates usually hold firm despite domestic economic growth risks (we have 4Q2023 GDP release this Friday). On an RV basis, we note that select AAA names, such as Tenaga, could see pickup on more yield realignment.

Forex

DXY Index: The US dollar index found support throughout the week in the foreign exchange market and chalked up >1.0% gains versus where it stood at the end of January. Against the dollar, traders sold off JPY the most (2.0% fall on the week), as the Bank of Japan’s Deputy Governor Shinichi Uchida said the central bank rules out raising rates rapidly when exiting the negative interest rate policy.

Malaysia: Domestically, the interest rate repricing a Fed cut further out into 2024 pushed the ringgit weaker as the USD/MYR pair approached the 4.78 level. We posit that global foreign exchange market volatilities remain on the upside as investors remain focused on signs of US economic resiliency, or the lack thereof.

Source: AmInvest Research - 13 Feb 2024