Government Debt Trend and Flows

▪ MGS and GII yields have mostly decreased over the past week, moving between -5.7 bps to 1.1 bps overall. The 10Y MGS yield increased by 0.9 bps to 3.871% by yesterday.

▪ Domestic bonds drew decent demand in contrast to the heavy sell-off among developed market government bonds, such as Treasuries and Gilts. The comparative stability can be attributed to Malaysia’s relatively less volatile monetary policy condition, as well as its better inflation and growth outlook; exports rebounded strongly in March (15.5% MoM; Feb: -0.3%).

▪ We expect domestic yields to trend rangebound over the next week amid the Hari Raya holidays. Today’s release of March’s CPI (KIBB: 3.6% YoY; Feb: 3.7%) will be of interest.

▪ Malaysian bonds may continue to receive foreign demand in the near-term due to a resilient domestic growth outlook and relatively higher yields. However, broader global risk sentiment will depend on the US Fed's next move and the upcoming FOMC meeting (May 2 – 3). If the Fed convincingly indicates no rate cuts this year and markets adjust accordingly, foreign portfolio inflows may falter. Nevertheless, we think it is more likely that the Fed will start cutting rates by at least the end of the year, which should bolster global risk sentiment in 2H23.

Auction Results (19-Apr)

▪ The 5Y MGS 4/28 was newly issued at RM5.0b with no private placement, as expected, and was awarded at an average yield of 3.519%

▪ Auction demand remained strong, especially given the fairly large RM5.0b issuance, recording a bid-to-cover ratio 2.434x. Local govvies remain attractive due to higher yields and a relatively robust economic outlook, despite some weakness in the global bond market.

▪ The next auction is a reopening of the 30Y GII 5/52 and we estimate an issuance of RM5.0b including RM2.5b worth of private placement.

Source: Kenanga Research - 20 Apr 2023