Government Debt Trend and Flows

▪ MGS and GII yields mostly increased this week, moving between -1.3 bps to 5.3 bps overall. The 10Y MGS yield rose by 3.0 bps to 4.037%, whilst the 3Y GII fell to 3.748%.

▪ Local bonds trended higher this week amid improving domestic political stability after Prime Minister Anwar Ibrahim’s successful vote of confidence on Monday. Furthermore, govvies continued to track global bond yields, rising on Tuesday following the Bank of Japan’s (BoJ) surprising move to tweak its yield curve controls.

▪ Yields may trend rangebound-to-higher next week, as markets continue to digest the BoJ’s hawkish tilt whilst other global catalysts remain sparse ahead of the New Year. Meanwhile, some focus will be on Malaysia’s inflation reading for November due later today.

▪ Foreign demand for Malaysian bonds may remain mildly pressured in the near-term as global risk sentiment falters following the BoJ’s unexpectedly hawkish shift. Likewise, global risk-aversion will likely linger until most major central banks complete their tightening cycles, with the US Fed and ECB only expected to finish hiking by 2Q23.

United States Treasuries (UST)

▪ UST yields increased this week, rising between 0.8 bps to 24.0 bps across the curve. The 10Y UST yield initially rose by 23.6 bps to 3.683% on Dec 20, before trending slightly lower to 3.669% by yesterday (+22.3 bps).

▪ US Treasury yields spiked on Tuesday after the BoJ unexpectedly loosened its yield cap on 10Y Japanese Government Bonds (JGB). The 10Y JGB capwas raised by 25 bps to 0.50%, for the first time since 2021, prompting a global sell-off of long-duration bonds. With that said, yields trended lower from Wednesday as calm returned to the markets and following a rebound in US consumer confidence in December (108.3; Nov: 101.4), its highest reading since April.

▪ US yields may trend higher next week, after the third reading of US GDP rebounded faster than previously estimated (3.2%; 2Q22: -0.6%). Meanwhile, initial jobless claims registered below market expectations for the week ending Dec 17 (216.0k; Consensus: 220.0k), accentuating the continued tightness of the US labour market.

Source: Kenanga Research - 23 Dec 2022