Government Debt Trend and Flows

▪ MGS and GII yields mostly rose this week, moving between -1.1 bps to 5.1 bps. The 10Y MGS yield rose 4.2 bps to 4.018%, whilst the 3Y MGS fell 1.1 bps to 3.524%.

▪ Domestic yields trended higher this week, steered by elevated global bond yields, but was restrained by BNM’s MPC meeting. The central bank kept the OPR at 2.75%, highlighting the favourable progress of China's reopening and the potential for robust domestic growth. Meanwhile, the bond market saw strong foreign inflows in February (RM4.3b; Jan: RM0.5b), although it may have tempered by the hawkish Fed towards the end of the month.

▪ Domestic yields may trend slightly higher next week, driven by volatility among US Treasuries. Attention will also be on Malaysia’s IPI for January (KIBB estimate: 1.5%; Jan: 3.0%), which may have weakened amid poor external demand.

▪ Persistently hawkish signals by the Fed, driven by strong US economic data and inflationary pressures, may lead to heightened risk-aversion among foreign investors and weigh on domestic bonds in the near-term. That said, foreign inflows could still chart a more stable recovery from 2Q23, but this would require a clear signal from the Fed regarding the end of its tightening cycle.

Auction Results (3-Mar)

▪ The 10Y MGS 7/32 reopened at RM4.5b, with no private placement, and was awarded at an average yield of 4.066%.

▪ Demand was weak, as expected, recording a bid-tocover (BTC) ratio of 1.670x. Global and domestic sentiment remains tepid due to expectations of further tightening by the US Fed and elevated US Treasury yields.

▪ The next auction is a reopening of the 7Y GII 9/30 and we estimate another issuance of RM4.5b with no private placement.

Source: Kenanga Research - 10 Mar 2023