Government Debt Trend and Flows

▪ MGS and GII yields mostly decreased last week, moving between - 7.7bps to 1.7bps overall. The 10Y MGS yield initially increased by 3.1bps to 3.631% on Nov 2, before closing the week lower at 3.561% (-3.9bps).

▪ Demand for MGS/GII was initially pressured last week in the lead up to Bank Negara Malaysia’s (BNM) and the US Fed’s monetary policy meetings. However, following BNM’s decision to maintain the policy rate and an unexpected drop in US Treasury yields, demand for Malaysian bonds improved towards the end of the week.

▪ Domestic yields may decrease slightly this week, in reaction to a significant decline in UST yields last Friday. However, potentially strong domestic economic data this week, including industrial production figures, may limit the downtrend in yields.

▪ Foreign demand for domestic bonds will likely remain pressured in the near-term, on the back of a global bond sell-off and the Fed commencing the tapering of its asset purchases. However, local bonds may find some support from the expansionary Budget 2022, improving domestic economic data, and rising yield differentials; the 10Y MGS-UST yield spread increased to 211.0bps last week.

Upcoming Auction

▪ The 15Y MGS 05/35 may reopen this week, and we estimate a total issuance of RM4.0b including private placement.

▪ The previous reopening of the 15Y MGS registered a strong bid-to-cover (BTC) ratio of 2.445x in May 2021, and we expect similarly strong demand at this auction given a potentially small auction size of RM2.0b – RM2.5b.

Source: Kenanga Research - 8 Nov 2021