Malaysian Government Securities (MGS) and Government Investment Issues (GII)

• Yield Movement: MGS and GII yields displayed mixed trends this week, ranging from -2.0 to 2.4 basis points (bps). The 10- year MGS eased by 0.3 bps to 3.817%, while the 10-year GII edged up by 0.2 bps to 3.833%.
• Key drivers: The slight decline in the 10-year MGS yield reflected renewed confidence in domestic investment landscape, bolstered by the signing of the Johor-Singapore Special Economic Zone agreement. Optimistic economic projection from finance minister II, anticipating growth above 5.0%, further bolstered the appeal of local bonds, attracting RM1.0b inflow into the debt market. This occurred despite headwinds from stronger-than-expected US JOLTs and ISM services data.
• Flows and yields outlook: Local bond yields are likely to see modest upwards pressure, driven by sustained improvements in the US economy. Upcoming US PPI data, alongside tonight's nonfarm payroll (NFP) release, will be key in gauging the extent of the rise in yields. Domestically, steady macro indicators, including next week's 4Q24 advance GDP release, may help anchor inflows and mitigate significant yield increases.

United States Treasuries (UST)

• Yield Movement: UST yields climbed across the curve, ranging from 2.5 bps to 15.2 bps. The 10-year UST surged 13.0 bps to 4.689%, while the 2-year UST edged up 2.5 bps to
• Key drivers: The upward movement in the 10-year UST yield was fuelled by upbeat US ISM services and JOLTs data, alongside low jobless claims. The FOMC minutes revealed cautious optimism from Fed officials, dampening rate-cut expectations and reinforcing the "higher-for-longer" narrative for inflation, further lifting yields.
• Outlook: UST yields are expected to maintain their upward trajectory next week, driven by expectations of continued strength in the US economy. Key releases, including US Core PPI and CPI data, will shape inflationary expectations, while tonight's NFP and unemployment data will provide a clearer picture of labour market conditions. Sustained economic strength could prompt markets to adjust their outlook, exerting further upward pressure on yields. Bond Market Weekly Outlook Local bond yields set to rise amid continued US economic strength

Auction Result

• The 7-yr MGS 07/32 reopened at a larger than expected issuance of RM5.0b, with an average yield of 3.799%.
• Demand was solid, with a bid-to-cover (BTC) ratio of 2.81x.
• The next auction will be the new issuance of 15.5-yr MGII 07/40 at an expected issuance of RM4.5b including private placement.

Source: Kenanga Research - 10 Jan 2025