Government Debt Trend and Flows

▪ MGS and GII yields mostly decreased last week, moving between -11.1bps to 3.3bps overall. The 10Y MGS yield initially fell by 5.6bps to 3.505% on Nov 10, before closing unchanged from the previous week at 3.561%.

▪ Demand for MGS/GII was strong early in the week following lower global bond yields and robust domestic IPI data. However, by midweek demand for bonds was pressured after US inflation registered hotter than expected, sending Treasury yields higher.

▪ Domestic yields may trend rangebound this week, as the impact of rising UST yields may be offset by risk-off sentiment following Malaysia’s deeper GDP contraction in 3Q21 (-4.5% YoY; 2Q21: 16.1%).

▪ Despite rising bond flows in October, the local debt market may yet experience softer foreign inflows in the near-term, due to the Fed taper decision and Malaysia’s weaker-than-expected 3Q21 GDP reading. Nonetheless, Malaysian bonds will continue to find some support from consistently high yield differentials and expectations of a solid economic recovery

Upcoming Auction

▪ The 15Y MGS 05/35 is scheduled to reopen on Nov 16, with an auction size of RM2.0b and an additional RM2.0b in 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 the relatively small auction size of RM2.0b.

Source: Kenanga Research - 15 Nov 2021