Government Debt Trend and Flows

▪ MGS and GII yields mostly increased this week, moving between -0.3 bps to 7.6 bps overall. The 10Y MGS yield initially rose by 4.5 bps to 3.820% on Feb 7, reaching a three-week high, before settling at 3.798% by yesterday (+2.3 bps).

▪ Domestic yields turned higher partly in line with rising global bond yields, but largely avoided the sizeable selloff seen among US Treasuries. Besides deteriorating global risk sentiment, local players may have been concerned by weaker domestic data, with December’s IPI growth registering below market expectations (3.0%; Consensus: 4.2%; Nov: 4.8%).

▪ Local yields may trend rangebound-to-lower next week, steered by a potential decline in US yields. Attention will also be on today’s 4Q22 GDP data; we expect it moderate to 6.6% (Consensus: 6.7%; 3Q22: 14.2%).

▪ After strong foreign demand in January, domestic bonds may face some selling pressure this month as global risk off sentiment reappears. That said, the bond market will likely still record an overall net foreign inflow in 1Q23; we also expect this to sustain throughout 2023, especially if the Fed completes its tightening cycle in March or May.

Auction Results (03-Feb)

▪ The 7Y MGS 4/30 reopened at RM5.0b, with no private placement, and was awarded at an average yield of 3.656%.

▪ Demand was strong, registering a bid-to-cover (BTC) ratio of 2.460x, albeit relatively softer than in recent weeks as market yields turn lower.

▪ Today’s auction is a new issue of the 20.5Y GII 8/43, with a total issuance of RM5.0b of which RM2.5b will be privately placed. We reckon demand will be solid given the smaller RM2.5b auction size but sentiment may be cautious amid the return of global risk aversion following last week’s strong US jobs data.

Source: Kenanga Research - 10 Feb 2023