Government Debt Trend and Flows

▪ MGS and GII yields trended rangebound last week, moving between -2.1bps to 1.2bps overall. The 10Y MGS initially fell by 0.9bps to 3.540% on Dec 22, before closing the week slightly higher at 3.561% (1.2bps).

▪ Demand for MGS/GII was relatively muted last week in the lead up to the new year. Nonetheless, yields began to trend higher towards the end of the week after studies from the UK and South Africa suggested that Omicron infections were less severe than Delta. Furthermore, local yields likely tracked a spike in UST yields as US PCE inflation registered a 39-year high in November.

▪ Domestic yields may rise this week, on a potential return of risk-on sentiment as Omicron fears begin to subside, and as US Treasury yields sustain an uptrend amid persistently high inflation.

▪ We expect foreign outflows from the Malaysian bond market to deepen in December following the US Fed’s decision to quicken its tapering pace and amid global uncertainty due to the spread of the Omicron variant. Nonetheless, Malaysia bonds may find some support from high yield differentials, and a potential return of risk-on sentiment following reports of milder Omicron severity.

Upcoming Auction

▪ The first auction of 2022 will be the reopening of the 5Y MGS 11/26. We estimate an issuance of RM4.0b with no private placement.

▪ The previous reopening of the 5Y MGS registered a decent bid-to-cover (BTC) ratio of 2.042x, on an auction size of RM4.5b, in October 2021.

▪ Meanwhile, BNM’s release of the 2022 MGS/GII auction calendar revealed a slightly lower number of planned auctions of 36 compared to 37 in 2021.

Source: Kenanga Research - 27 Dec 2021