Government Debt Trend and Flows

▪ MGS and GII yields rose last week, increasingbetween1.8bps to 18.6bps overall. The 10Y MGS yield initially rose by 11.7bps to 4.004%, its highest level since January 2019, before closing the week at 3.994% (+10.7bps).

▪ Domestic yields continued to trend higher amid rising global bond yields, especially following hawkish remarks from the Fed and the US FOMC minutes indicating a rapid Fed balance sheet run-off, potentially starting in May. Furthermore, the domestic bond market registered a substantial foreign fund outflow of RM4.0b in March, amid the global bond sell-off and sizeable maturities of MGS and GII.

▪ Yields may trend rangebound-to-higher this week, likely steered by the performance of US Treasuries and the release of US inflation data for March.

▪ We expect continued foreign fund outflows in April, amid an increasingly hawkish US Fed, narrowing yield differentials, and RM11.0b worth of GII maturing this month. However, the outflow may be smaller than in March and demand for local bonds is expected to recover in the medium-term as Malaysia likely charts a sustained economic recovery.

Auction Results (06-April)

▪ The 10.5Y GII 10/32 was newly issued at a larger-thanexpected RM4.5b, with no private placement, and was awarded at an average yield of 4.193%.

▪ Demand was strong, recording the highest bid-to-cover (BTC) ratio of the year at 2.503x, likely due to greater appeal amid higher yields and despite the global bond sell-off.

▪ The next auction is a new issue of the 20.5Y MGS 10/42 and we estimate an issuance of RM5.0bincluding private placement.

Source: Kenanga Research - 11 Apr 2022