Government Debt Trend and Flows

▪ MGS and GII yields rose this week, moving between 1.8 bps to 8.9 bps overall. The 10Y MGS yield initially increased by 9.4 bps to 3.892% on Feb 15, its highest in five weeks, before settling at 3.882% by yesterday (+8.4 bps).

▪ Domestic yields rose mainly due to rising global bond yields, particularly among US Treasuries after the hotterthan-expected US inflation print. Meanwhile, foreign inflows returned to the Malaysian bond market in January (RM0.5b; Dec: -RM0.9b) for the first time in five months, as global risk-aversion began to subside.

▪ Local yields may increase this next week, driven by the recent surge in global bond yields. Focus will also be on the tabling of the revised Budget 2023 next Friday (Feb 24).

▪ Foreign demand for domestic debt may be relatively weak in the near-term amid the return of global risk-off sentiment and the continued narrowing of yield spreads; the 10Y MGS-UST differential fell to 2.1 bps yesterday (previous week: 14.0 bps). Nonetheless, we still expect foreign inflows to chart a more stable recovery from 2Q23 onwards, after most major central banks finish tightening.

Auction Results (13-Feb)

▪ The 20.5Y GII 8/43 was newly issued at MR5.0b, of which RM2.5b was privately placed, and was awarded at an average yield of 4.291%.

▪ Demand was fairly strong, registering a bid-to-cover (BTC) ratio of 2.662x on a relatively small RM2.5b auction size.

▪ The next auction is a reopening of the 3Y MGS 7/26 scheduled for Feb 20, with a sizeable issuance of RM5.5b and no private placement

Source: Kenanga Research - 17 Feb 2023