Government Debt Trend and Flows

▪ MGS and GII yields mostly decreased this week, moving between -5.9 bps to 3.5 bps overall. The 10Y MGS yield fell by 2.8 bps to 3.851%, whilst the 3Y MGS yield decreased by 4.2 bps to 3.460%.

▪ Domestic bonds were steered by a decline in global bond yields early in the week and demand remained relatively solid for the 20Y GII auction. That said, daily trading volume declined significantly this week so far at RM2.4b, compared to the surge in daily volume last week of RM4.3b.

▪ We expect domestic bond yields to trend slightly higher next week, driven by external catalysts in the US. Attention will be on the conclusion of the Jackson Hole Symposium for further signals over the Fed’s policy direction, as well as next week’s release of the US PCE price index and non-farm payrolls.

▪ Foreign interest in domestic bonds is expected to remain robust throughout the remainder of the year despite cautious sentiment in global bond markets. Malaysia bonds should benefit from improved political stability after the local state elections and the increasing likelihood that major central banks have concluded their tightening cycles. Likewise, we foresee further foreign portfolio outflows from China will continue to be directed towards Malaysia and the broader Emerging Asia region.

Auction Results (22-August)

▪ The 20Y GII 8/43 reopened at an expected RM5.0b, of which RM2.0b was privately placed, and was awarded at an average yield of 4.285%.

▪ Demand was solid, recording a bid-to-cover ratio of 1.992x on a RM3.0b issuance. The auction was well-bid despite cautious market sentiment, driven by the recent sell-off of US Treasuries and widespread increase in global bond yields.

▪ The next auction will be the reopening of the 15Y MGS 6/38, and we expect it to take place next week with an estimated issuance of RM5.0b including private placement.

Source: Kenanga Research - 25 Aug 2023