Government Debt Trend and Flows

▪ MGS and GII yields mostly increased this week, moving between -0.4 bps to 7.8 bps overall. The 10Y MGS yield rose by 6.3 bps to 3.801%, whilst the 3Y GII fell by 0.4 bps to 3.473%.

▪ Domestic bond yields increased this week, amid a further uptrend in global bond yields as Fed officials reiterated the potential for further rate hikes. That said, average daily trading volume for government bonds increased to RM4.8b so far this week (last week: RM3.6b).

▪ Domestic yields may trend rangebound-to-higher next week, as global bond yields continue to rise. Some focus will also be on today’s release of the May CPI print (KIBB: 2.9%; Apr: 3.3%)

▪ Foreign interest in domestic bonds will likely remain somewhat restrained in the near-term, amid narrow yield differentials compared to developed market bonds and a return of risk-off sentiment given hawkish comments by Fed officials. There remains some risk of foreign outflows if the Fed resumes raising interest rates in the coming months.

Auction Results (21-June)

▪ The 20Y MGS 10/42 reopened at a larger-than-expected RM5.5b, of which RM2.5b was privately placed, and was awarded at an average yield of 4.195%.

▪ Demand was solid, recording a bid-to-cover (BTC) ratio of 1.877x on an auction size of RM3.0b. This is comparable to the previous reopening of the 20Y MGS in October 2022, which registered a BTC of 1.913x on a RM2.5b auction.

▪ The next auction is a reopening of the 5Y GII 7/28, and we estimate an issuance of RM5.0b with no private placement.

Source: Kenanga Research - 23 Jun 2023