Government Debt Trend and Flows

▪ MGS and GII yields mostly declined last week, moving between -10.5bps to 1.8bps overall. The 10Y MGS fell by 3.8bps to 4.015%, remaining at its lowest level in 3-months, whilst the 3Y MGS yield increased by 4.3bps to 3.531%, a 1-month high.

▪ Demand for domestic bonds was generally strong last week,as global bond yields maintained a downtrend amid recession concerns and interest rate hikes. This comes despite strongerthan-expected trade data as Malaysia’s exports growth rose to a 13-month high of 38.8% in June (May: 30.4%), whilstinflation registered hotter-than-expected at 3.4% (May: 2.8%).

▪ Domestic yields may continue to trend lower this week,steered by global bond yields ahead of the US FOMC meeting (July 26– 27) and following the ECB’s recent rate hike.

▪ Foreign demand for domestic bonds will likely remain pressured in July, amid the ECB’s larger-than-expected 50bps rate hike and another widely expected 75bps hike by the Fed. Furthermore, RM19.0b worth of domestic bonds have matured this month, although some of this was likely reinvested in recent auctions given their strong performance.

Auction Result (21-July)

▪ The20YMGS10/42reopened at anexpected RM5.0b, of which RM2.5b was privately placed, and was awarded at an average yield of 4.598%.

▪ Demand was strong, registering a bid-to-cover (BTC) ratio of 2.656x (YTD average: 2.345x)on sustained safehaven demand for bonds.

▪ The next auction is a reopening of the 7Y GII 7/29, and we estimate an issuance of RM4.5b without private placement.

Source: Kenanga Research - 25 Jul 2022