Government Debt Trend and Flows

▪ MGS and GII yield movements were mixed last week, moving between -4.6bps to 10.7bps overall. The 10Y MGS yield rose initially rose by 0.9bps to 3.569 on Dec 15, before closing the week lower at 3.549% (-1.1bps).

▪ Demand for MGS was pressured at times last week, especially following the US FOMC meeting, which saw a hawkish Fed announce a faster taper. Nonetheless, by the end of the week, concerns on the Omicron variant led to renewed risk-off demand for Malaysian bonds.

▪ Domestic yields may trend rangebound-to-lower this week, amid declining UST yields and sustained fears regarding the spread of the Omicron variant globally.

▪ We expect foreign outflows from the Malaysian bond market to persist in the near-term due to the uncertainty surrounding the Omicron variant and the resurgence in COVID-19 infections in some parts of the world. Furthermore, bond flows will also be impacted by the Fed’s decision to quicken the taper and its signal of possibly three rate hikes next year. However, Malaysian bonds may still find some support from increasingly high yield differentials. Nevertheless, we expect a net debt selloff in December with higher probability of the quantum to exceed November’s RM3.6b.

Auction Results (15-Dec)

▪ The 3Y MGS 06/24 reopened at RM4.5b in the final auction of the year, with no private placement, and registered an average yield of 2.881%.

▪ Demand was weak, recording a very low bid-tocover (BTC) ratio of 1.158x, the lowest level this year and well below the 2021 average BTC of 2.159x.

Source: Kenanga Research - 20 Dec 2021