Government Debt Trend and Flows

▪ MGS and GII yields mostly decreased over the past week, moving between -10.8 bps to 1.0 bps overall. The 10Y MGS yield fell by 10.8 bps to 3.731%, its lowest level since January this year.

▪ Domestic bonds continued to attract decent demand with relatively high trading volumes despite the shorter workweek, partly steered by a downtrend in global bond yields.

▪ We expect domestic yields to trend rangebound-to-higher over the next week, mostly influenced by the US Fed’s upcoming meeting and expected rate hike. Meanwhile, we expect BNM to hold the OPR at 2.75% next week (May 2 – 3), which will likely have little impact on the bond market.

▪ The local bond market may continue to experience sustained foreign interest going forward, thanks to Malaysia’s robust domestic growth prospects and comparatively higher bond yields. Nonetheless, this is contingent on global risk sentiment and the US Fed’s next policy action, with market expectations still uncertain given the recent US GDP print and today’s PCE Price Index report. If the Fed signals that it will hold interest rates higher over the next year and persistently brush aside talks of rate cuts, foreign capital inflows into Malaysian bonds could dwindle.

Auction Results (26-Apr)

▪ The 30Y GII 5/52 reopened at RM5.0b as expected, of which RM2.5b was privately placed, and was awarded at an average yield of 4.294%

▪ Demand was decent, recording a bid-to-cover ratio of 2.153x on a relatively modest RM2.5b auction. Market sentiment was likely a tad cautious during the shorter workweek and may have been impacted by weaker foreign demand ahead of the next US FOMC meeting.

▪ The next auction is a reopening of the 7Y MGS 4/30 and we anticipate an issuance of RM5.0b with no private placement.

Source: Kenanga Research - 28 Apr 2023