Government Debt Trend and Flows

▪ MGS and GII yields mostly increased this week, moving between -1.2 bps to 6.6 bps overall. The 10Y MGS yield rose 6.2 bps to 3.976%, an 8-week high.

▪ Domestic yields partly rose with global bond yields but was likely restrained by BNM’s neutral policy stance and the retabling of Budget 2023. The new budget may reinforce Malaysia’s sovereign credit ratings with its focus on fiscal prudence, but a rating upgrade is unlikely given only moderate fiscal consolidation. The government may struggle to achieve the 3.2% GDP deficit target by 2025, but the proposed presentation of the Fiscal Responsibility Bill later this year is a positive development.

▪ Yields may trend rangebound-to-higher, partly steered by rising global bond yields, but would likely be restricted ahead of BNM’s MPC meeting (Mar 9) where the OPR is expected to remain unchanged.

▪ Although there may be a lack of foreign demand for domestic bonds in the near term, due to global risk aversion amid renewed expectations of a hawkish US Fed, we still expect a substantial recovery and stabilization of foreign inflows to occur from 2Q23. This will likely happen once most major central banks finish implementing their tightening measures.

Auction Results (27-Feb)

▪ The Sustainability 15Y GII 3/38 reopened at RM5.5b, of which RM2.0b was privately placed, and was awarded at an average yield of 4.177%.

▪ Demand was decent, as expected, given the relatively moderate RM3.5b auction size; registering a bid-to-cover (BTC) ratio of 1.986x. There was likely a dearth of foreign interest given poor global risk sentiment and higher US Treasury yields.

▪ Today’s auction is a reopening of the 10Y MGS 7/32 with an issuance of RM4.5b and no private placement.

Source: Kenanga Research - 3 Mar 2023