Government Debt Trend and Flows

▪ MGS and GII yield movements were mixed last week, ranging between -8.6bps to 4.6bps overall. The 10YMGS rose 4.6bps to 3.249%, a 2-month high, whilst the 3Y MGS fell 6.2bps to 2.243%, its lowest level in five weeks.

▪ The short and long-end of the curve saw strong risk-off demand last week, as the full-scale movement control order (MCO) came into force. On the other hand, the 10Y MGS saw selling pressure following the announcement of its reopening auction, to be held this week.

▪ Yields may move in a tight range this week, as risk-off demand, driven by the total MCO, will likely be offset by a potential increase in UST yields. Nevertheless, the market will closely monitor the state of the pandemic, with any sustained rise in local COVID-19 cases likely to push yields lower.

▪ Foreign inflows into the debt market may moderate in the near term due to elevated local COVID-19 cases and the implementation of the full-scale MCO. However, Moody’s recently reaffirmed Malaysia’s credit profile at A3 stable, providing a positive catalyst for government bonds in the medium to long-term. Furthermore, the 10Y MGS-UST yield spread remains attractive, rising to 169.6bps (previous week: 161bps)

Upcoming Auction

▪ The next auction is a reopening of the 10Y MGS 04/31 and is scheduled to take place on 8 June. A total issuance of RM5.0b has been announced as expected, of which RM0.5b with be privately placed.

▪ The previous reopening of this security registered a bid-to-cover (BTC) ratio of 1.992x in January. We expect demand for this auction to be solid and draw a BTC closer to the YTD average of 2.169x.

Source: Kenanga Research - 8 Jun 2021