Government Debt Trend and Flows

▪ MGS and GII yields fell across the curve last week, moving between -34.4bps to -5.3bps overall. The 10Y MGS yield initially fell by 25.0bps to 4.118% on May 26, its lowest level in six weeks, before closing the week at 4.125% (-24.3bps).

▪ Domestic yields sustained a downtrend last week on lower global yields as investors continue to seek safety in bonds. Furthermore, local yields trended considerably lower following the 10Y MGS auction, which saw its yield fall slightly below the 4.3% level on strong demand. This comes despite a slight increase in Malaysia’s inflation rate in April (2.3%; Mar: 2.2%).

▪ We expect domestic yields to continue its downtrend this week, as demand for bonds recover from a period of sustained sell-off, and in line with lower global bond yields.

▪ Foreign demand for local bonds may remain pressured in the near-term, as the US Fed commits to further 50bps rate hikes. However, we expect a smaller net outflow of foreign funds in May due to BNM’s OPR hike, growing safe-haven demand for bonds, and the lack of MGS/GII maturities this month.

Auction Results (May-23)

▪ The 10Y MGS 07/32 reopened at an expected size of RM4.5b, with no private placement, and was awarded at an average yield of 4.294%.

▪ Demand was very strong, recording a bid-to-cover (BTC) ratio of 2.598x, amid growing safe-haven demand for bonds globally.

▪ The next auction is a reopening of the 3Y GII 10/25, scheduled for May 30 with an issuance of RM5.0b and no private placement.

Source: Kenanga Research - 30 May 2022