KUALA LUMPUR: MIDF Research expects that foreign inflows into the domestic bond market will persist, leading to further appreciation of the Malaysian ringgit.

In a research note today, the firm highlighted that fundamental growth and stable price developments are likely to attract more funds into Asian markets, including Malaysia.

"As yield movements tend to align with United States Treasury (UST) yields, we foresee that Malaysian Government Securities (MGS) yields will also decline as the market prices in additional rate cuts by the US Federal Reserve," it said.

Consequently, MIDF Research forecasts that the 10-year MGS yield will settle at 3.60 per cent by year-end.

"Despite the increase in August 2024 to 3.76 per cent, we continue to expect the 10-year MGS yield to trend lower towards 3.60 per cent by year-end," it said.

Additionally, MIDF Research reported that foreign holdings of Malaysian bonds rose to RM288.1 billion in August 2024, up from RM279.1 billion in July 2024.

The total foreign inflow into Malaysia's debt market surged to RM17.6 billion in the first eight months of 2024.

Notably, the monthly increase of RM9.0 billion in August 2024 alone exceeded the cumulative rise of RM8.7 billion in the preceding seven months.

"The monthly increment in foreign holdings in August 2024 was the largest since July 2023," the firm added.

Furthermore, with foreign holdings of public debt securities and sukuk rising to RM273.7 billion in August 2024 (July 2024: RM265.4 billion), the ratio of foreign holdings to total outstanding government bonds increased to 22.6 per cent.

This level matches that of December 2023 but remains below the pre-pandemic average of 23.1 per cent in 2019.

Conversely, the share of government bonds in total foreign holdings slightly decreased to 95.0 per cent in August 2024 (July 2024: 95.1 per cent), as foreign holdings of Malaysian corporate bonds rose by 5.1 per cent month-on-month to RM14.4 billion (July 2024: RM13.7 billion).