Malaysian Government Securities (MGS) and

• Yield Movement: MGS and GII yields continued to decline, falling between -0.1 to -4.3 basis points (bps). The 10-year MGS fell by 3.0 bps, settling at 3.780% while the 10-year GII edged 1.2 bps lower to 3.798%.
• Key drivers: Local yields trended downward, driven by Fed Governor Waller's indication of a potential December rate cut. However, the domestic debt market recorded RM2.9b in outflows, primarily driven by robust US labour market data, highlighted by elevated JOLTs figures, and Fed Chair Powell's upbeat US economic outlook, which reduced expectations for future rate cuts. On the domestic front, weaker PMI data added pressure, which could trigger outflows.
• Flows and yields outlook: Local yields may edge higher as US inflation data shape expectations for December's rate cut. Key focus will be on tonight's release of unemployment rate and non-farm payrolls. A resilient labour market and anticipated improvement in IPI data may attract foreign interest, helping temper outflows from the local debt market in the final two months of the year. Despite recent volatility, foreign investors remained net buyers of government debt, with RM7.3b inflows recorded from January till October.

United States Treasuries (UST)

• Yield Movement: UST yields fell across the curve, decreasing by -6.1bps to -10.4 bps. The 10-year UST declined by 8.7 bps to 4.176%, while the 2-year UST dropped by 8.3 bps to
• Key drivers: The 10-year UST yield decline reflects heightened safe-haven demand following South Korea's martial law announcement and France's government collapse. This, alongside softer ISM services PMI data and Fed Governor Waller's optimism about a December rate cut, offset stronger- than-expected JOLTS data and Fed Chair Powell's positive outlook on the US economy, driving yields lower.
• Outlook: UST yields may edge slightly higher if core inflation data confirms a MoM rise of 0.3% or higher. However, tonight's unemployment rate could offset this momentum if the figure come in higher than consensus (4.1%). We will closely monitor Trump's social media activity for signals on policy direction.

Auction Result

• There was no issuance or reopening of bonds this week.
• The next auction will be the reopening of 10-yr MGS 07/34 at an expected issuance of RM5.0b with no private placement.

Source: Kenanga Research - 6 Dec 2024