Government Debt Trend and Flows

▪ MGS and GII yields fell across the curve last week, moving between -23.4bps to -5.4bps overall. The 10Y MGS yield initially rose by 2.3bps to 4.445% on May 18, before closing the week lower at 4.368% (-5.4bps).

▪ Domestic yields declined last week, in line with a downtrend in US Treasury yields as global investors pivot away from equities and into the safety of bonds.

▪ Yields will likely continue to trend lower in the near-term, steered by a downtrend in global bond yields as investors digest recent rate hikes by major central banks. Demand for domestic bonds may also be driven by attractively high yield levels and the upcoming 10Y MGS auction.

▪ We expect foreign demand for local bonds to remain pressured in the near-term, as the US Fed continues to tighten monetary policy. With that said, given BNM’s rate hike and no scheduled MGS/GII maturities this month, the foreign fund outflow may be smaller in May.

Upcoming Auction

▪ The 10Y MGS 07/32 reopening auction is scheduled for May 23 with an expected issuance of RM4.5b and no private placement.

▪ The previous 10Y MGS auction in January garnered a solid bid-to-cover (BTC) ratio of 2.044x, and we expect similar performance at this auction given the identical auction size and rising demand for bonds.

Source: Kenanga Research - 23 May 2022