Government Debt Trend and Flows

▪ MGS and GII yields mostly increased this week, moving between -1.7 bps to 5.0 bps overall. The 10Y MGS yield rose by 5.0 bps to 4.087%, whilst the 3Y GII fell to 3.646%.

▪ As expected, local bond yields trended rangebound-to-higher amid the shorter working week and as catalysts remainedthin ahead of the New Year. Malaysia’s headline inflation for November remained unchanged and within expectations (4.0%; Oct: 4.0%), although core inflation reached a new peak of 4.2%.

▪ Domestic yields may trend rangebound-to-lower next week, taking cues from a potential decline in US bond yields amid the New Year.

▪ Foreign demand for Malaysian bonds will likely remain mildly pressured in the near-term as global risk sentiment stays tepid. Risk-aversion may linger amid concerns over the global economic outlook in 2023, and we do not expect sustained relief until after most major central banks complete their tightening cycles perhaps by 2Q23.

Upcoming Auction

▪ The first auction of 2023 will be the reopening of the10Y GII 10/32. We estimate an issuance of RM4.5b with no private placement.

▪ The previous reopening of the 10Y GII registered a relatively weak bid-to-cover (BTC) ratio of 1.739x, on a smaller auction size of RM3.5b, in October 2022.For this auction, we expect similar demand and a BTC of between 1.7x – 1.9x given cautious market sentiment.

▪ Meanwhile, BNM’s release of the 2023MGS/GII auction calendar revealed a slightly higher number of planned auctions of 37 compared to 36 in 2022.

Source: Kenanga Research - 30 Dec 2022