Government Debt Trend and Flows
▪ MGS and GII yields increased last week, rising between 1.4bps to 9.9bps overall. The 10Y MGS yield rose by 9.9bps to 4.139%, its highest level in two months.
▪ Demand for domestic bonds remained weak amid delicate investor sentiment and a shorter work week, but yields rose relatively less than that of other global bonds. With that said, the average daily trading volume for government bonds decreased to RM2.7b last week (previous week: RM3.3b).
▪ Domestic yields may trend higher this week, in response to another expected 75bps rate hike by the Fed and a projected increase in Malaysia’s inflation rate for August (KIBB: 4.9%; consensus: 4.7%; Jul: 4.4%) (Sep 23).
▪ Foreign demand for domestic bonds could be moderately pressured in September, amid strong global risk-aversion as the Fed and other major central banks continue to aggressively tighten monetary policy. Likewise, demand may also be hindered by the continued downtrend of domestic yield differentials; the 10Y MGS-UST yield spread fell to 69.0bps last week (previous week: 73.0bps).
Auction Results (14-Sep)
▪ The 3Y GII 10/25 reopened at an expected RM5.0b,with no private placement, and was awarded at an average yield of 3.474%.
▪ As expected, demand for the auction was relatively weaker than the previous reopening of the 3Y GII, recording a bid-to-cover (BTC) ratio of just 1.836x compared to the 3.632x registered in May. This comes amid intense global risk-aversion, with UST yields soaring and China suffering persistent bond outflows.
▪ The next auction is of the 7Y MGS 4/29, and we expect an issuance of RM4.5b with no private placement.
Source: Kenanga Research - 19 Sept 2022