Government Debt Trend and Flows

▪ MGS and GII yields continued to rise last week, increasing between 8.2bps to 28.5bps overall. The 10Y MGS yield rose by 10.7bps to 4.195%, its highest level since June 2018, whilst the 7Y MGS surged 28.5bps to 4.225%, inverting the 10Y-7Y segment of the curve.

▪ Local yields continued to be driven by rising global bond yields, especially following Chairman Jerome Powell’s hints of more aggressive Fed policy in upcoming meetings and several European policymakers suggesting that the ECB could raise rates starting in July.

▪ Domestic yields may trend rangebound-to-lower this week, potentially finding demand amid attractively high yields. Nonetheless, local bonds will likely remain sensitive to the volatility of US Treasuries, heading towards the next US FOMC meeting (May 3 – 4).

▪ Given the global bond sell-off and consistently hawkish US Fed rhetoric, we continue to expect an outflow of foreign funds from the local debt market in April. However, the outflow may be less than in March on a smaller amount of local bond maturities this month.

Auction Results (20-April)

▪ The 15Y GII 07/36 reopened at an expected size of RM5.0b, of which RM2.5b was privately placed, and was awarded at an average yield of 4.826%.

▪ Demand was solid, recording a bid-to-cover (BTC) ratio of 1.879x, despite the strong global bond sell-off last week.

▪ The next auction is anew issueof the 7Y MGS04/29, and we expect an issuance of RM4.5b with no private placement.

Source: Kenanga Research - 25 Apr 2022