Malaysian Government Securities (MGS) and Government Investment Issues (GII)
Yield Movement: MGS and GII yields continued to display mixed trends this week, ranging between -0.4 and 2.6 basis points (bps). The 10-year MGS inched up by 0.1 bps to 3.818%, while the 10-year GII climbed 0.6 bps to 3.839%.
Key drivers: The slight uptick in the 10-year MGS yield was partly driven by softer November distributive trade data in Malaysia and persistent strength in the US labour market. These factors contributed to RM0.4b in net outflows from the domestic bond market, outweighing the impact of softer-than- expected US core CPI and PPI figures.
Flows and yields outlook: Domestic bond yields may edge higher next week as markets position for Trump's inauguration. Today's release of Malaysia's 4Q24 advance GDP data which came out at 4.8% (3Q24: 5.3%; KIB estimate: 4:6%), bringing a solid overall GDP growth of 5.1% for 2024 (2023: 3.7%). Coupled with improving trade figures, stable inflation, and BNM's unchanged policy stance, this should help contain outflows from the local debt market.
United States Treasuries (UST)
Yield Movement: UST yields also showed mixed trends this week, ranging from -5.8 bps to 1.1 bps. The 10-year UST fell 3.4 bps to 4.655%, while the 2-year UST edged up by 1.0 bps
Key drivers: The decline in the 10-year UST yield was primarily driven by cooler-than-expected US core inflation, promoting investors' to adjust rate expectations, leaning towards sooner and more cuts. Fed Waller's remarks on the possibility of multiple rate cuts in 2025 further pulled yields lower, as investors sought to lock in current attractive yields.
Outlook: UST yields are expected to rise next week amid investor caution surrounding Trump's policy rollouts post- inauguration. While the Israel-Hamas ceasefire has eased tension, geopolitical risks remain. Renewed tensions could heighten volatility, spur more demand for safe-haven assets, and cap significant upward movement in yields. Bond Market Weekly Outlook Domestic yields set to rise ahead of Trump's inauguration
Auction Result
The 15.5-yr MGII 07/40 reopened at a lower-than-expected total issuance of RM4.0b, with an average yield of 3.974%.
Demand was strong, with a bid-to-cover (BTC) ratio of 4.29x, indicating solid investor interest (2024 average BTC: 2.37x).
The next auction will be the reopening of 3-yr MGII 07/38 at an expected issuance of RM5.0b without private placement.
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