Government Debt Trend and Flows

▪ MGS and GII yields fell this week, moving between -28.5 bps to -4.4 bps overall. The 10Y MGS yield decreased by 11.9 bps to 4.056%, its lowest level in three months.

▪ Domestic yields continued to trend lower this week on the back of improved political stability, with foreign demand likely returning. Likewise, local govvies largely tracked falling US Treasury yields as markets reinforced expectations of a less hawkish Fed and a smaller rate hike at the upcoming US FOMC meeting (Dec 13 – 14).

▪ Yields may continue to fall next week, steered by plummeting US Treasury yields and the easing of global risk-aversion. Focus will also be on the expected announcement of the unity government’s Cabinet line-up.

▪ Foreign demand for Malaysian bonds will likely improve in the near-term, buoyed by the appointment of the new Prime Minister, and driven by global risk-on sentiment following relatively dovish Fedspeak and signs that US inflation is cooling. However, some downside risks remain from the upcoming US FOMC meeting and with PM Anwar Ibrahim to hold a confidence vote on Dec 19.

Auction Results (Nov-29)

▪ The 30Y GII 5/52 reopened at an expected RM5.0b, of which RM2.5b was privately placed, and was awarded at an average yield of 4.768%.

▪ Demand was solid, registering the highest bid-tocover ratio in two months (2.243x). This comes amid a relatively smaller auction size and renewed optimism following the easing of political uncertainty, with foreign investors likely returning.

▪ The next auction is a reopening of the 10Y MGS 7/32 and we estimate an issuance of RM4.5b with no private placement.

Source: Kenanga Research - 2 Dec 2022