Government Debt Trend and Flows

▪ MGS and GII yields mostly increased this week, moving between -3.0 bps to 4.3 bps overall. The 10Y MGS yield rose by 1.9 bps to 3.911%, while the 3Y MGS yield fell by 3.0 bps to 3.348%.

▪ Yields may have trended slightly higher after the release of BNM’s annual report, which indicated that the central bank would maintain an accommodative stance but believed domestic inflation remained a concern. We reckon that BNM has reached the end of its tightening cycle but acknowledge that there is still room for another 25 bps hike if there is a resurgence in inflationary pressures.

▪ Next week, domestic bonds are expected to remain relatively stable compared to the extreme volatility among developed market bonds. That said, we do expect local yields to trend slightly higher if US inflation data surprises on the upside.

▪ In the near term, foreign demand for local bonds is expected to sustain, supported by a nascent improvement in global risk-on sentiment. Furthermore, foreign investors are likely to continue seeking higher returns and diversification of their portfolios into Emerging Market assets.

Auction Results (30-March)

▪ The 30Y MGS 3/53 was newly issued at an expected RM5.0b, of which RM2.5b was privately placed, and was awarded at an average yield of 4.457.

▪ Demand was decent, recording a bid-to-cover (BTC) ratio of 1.970x, albeit on a relatively smaller auction size of RM2.5b. Market sentiment remained fairly cautious given the recent Fed rate hike and US regional banking crisis, with domestic investors likely wary of adding into long-duration bonds.

Source: Kenanga Research - 31 Mar 2023