Government Debt Trend and Flows

▪ MGS and GII yields were mixed last week, moving between -10.0bps to 2.3bps overall. The 10Y MGS soared 7.4bps to 3.323%on8 June, an 11-week high, before
  closing the week lower at 3.23%.

▪ The 10Y MGS yield initially surged amid its reopening auction last Tuesday but saw strong risk-off demand by the end of the week. The market still remained
  cautious due to the persistently high level of local COVID-19 cases and the ongoing Full Movement Control Order (FMCO). As expected, foreign inflows into the
  bond market softened in May, but charted 13-months of consecutive inflows.

▪ We expect domestic yields to continue trending rangebound this week, with a slight downside bias, on the back of pressured UST yields and the extension of the
  FMCO until 28 June. In the medium to long-term, when lockdown restrictions ease, we project yields to return to an uptrend amid a solid domestic economic
  recovery.

▪ We expect the ongoing FMCO to temper foreign demand for local bonds this month. Nevertheless, foreign flows will likely remain positive due to high yield
  differentials and Moody’s recent affirmation of Malaysia’s credit profile. However, the outlook for inflows will be contingent on the outcome of Malaysia’s sovereign
  credit review by S&P Global Ratings. The 10Y MGS-UST yield spread remains attractive, rising to 178bps (previous week: 169bps).

Auction Results (08-June)

▪ The 10Y MGS 04/31 reopened at RM5.0b, of which RM0.5b was privately placed, and was awarded at an average yield of 3.313%.

▪ Demand was decent, with a bid-to-cover (BTC) ratio of 1.966x, although lower than the YTD BTC average of 2.157x.

▪ The next auction is a reopening of the 3Y GII 10/24. We estimate an issuance of RM4.0b without private placement.

Source: Kenanga Research - 14 Jun 2021