Government Debt Trend and Flows

▪ MGS and GII yields broadly decreased this week, moving between -9.8 bps to -0.1 bps overall. The 10Y MGS yield fell by 1.9 bps to 3.839%, its lowest level since February this year.

▪ As expected, domestic bond yields trended lower, partly influenced by the sharp decline in US Treasury yields last week. This week, average daily trading volume for govvies fell to RM4.1b, compared to RM4.5b last week. That said, foreign inflows into the local bond market increased in March (RM6.6b; Feb: RM4.3b), reaching a 19-month high.

▪ Next week, we expect domestic yields to trend rangeboundto-higher, taking some queues from the recent rise in US Treasury yields. That said, focus will also be on Malaysia’s CPI reading for March (KIBB estimate: 3.6%; Feb: 3.7%).

▪ Foreign demand for domestic bonds may persist in the near-term as investors continue to secure higher yields in Emerging Market bonds. The Fed may have less motivation to raise rates going forward following further easing in US inflation and the cooling labour market, with rate cuts potentially on the cards towards end-2023. Malaysian sovereigns are in a strong position to benefit from a return of global risk-on sentiment given their relatively high yields.

Auction Results (7-Apr)

▪ The 10Y GII 10/32 reopened at RM4.5b, with no private placement, and was awarded at an average yield of 3.936%.

▪ The auction posted strong demand, recording a bidto-cover (BTC) ratio of 2.367x, higher than the previous 10Y GII auction in January (2.093x) and greater than in recent auctions; demand was likely lifted by a return of foreign interest.

▪ The next auction is a new issue of the 5Y MGS 4/28 and we estimate an issuance of RM5.0b with no private placement.

Source: Kenanga Research - 14 Apr 2023