Government Debt Trend and Flows

▪ MGS and GII yields mostly increased this week, moving between -1.3 bps to 12.0 bps overall. The 10Y MGS rose by 2.0 bps to 3.723%, whilst the 30Y MGS yield fell by 1.3 bps to 4.136%.

▪ Domestic sovereigns saw pressure this week in the face of higher global bond yields and risk aversion. The 3Y GII reopening auction drew weak demand resulting in a 12.0 bps increase in its yield to 3.461%.

▪ Domestic yields may trend slightly higher early next week, as demand for govvies remain tepid, and steered by volatile global bond yields ahead of the US CPI release and the US FOMC meeting (June 13 – 14). That said, demand for bonds could improve if the Fed pauses and indicate a more dovish stance.

▪ Foreign demand for domestic bonds is expected to be subdued in the near-term, as global risk aversion remains largely prevalent leading up to the upcoming US FOMC meeting and after the stronger-than-expected US jobs data last week. Domestic sovereigns may also face pressure from broadly lower yields against developed market bonds, with the 10Y MGS-UST differential narrowing sharply this week (0.5 bps; previous week: 10.8 bps).

Auction Results (7-June)

▪ The 3Y GII 9/26 reopened at a slightly smaller-thanexpected RM4.5b, with no private placement, and was awarded at an average yield of 3.435%.

▪ Demand was weak, recording a bid-to-cover (BTC) ratio of 1.759x, as selling pressure returned to domestic government bonds and sentiment was generally cautious ahead of the US FOMC meeting next week.

▪ The next auction is a reopening of the 20Y MGS 10/42, and we estimate an issuance of RM4.5b including private placement.

Source: Kenanga Research - 9 Jun 2023