Tuesday, November 24

Malaysian bonds benefit from sustained foreign demand in July

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KUCHING: Regional bond markets have seen a recent resurgence of foreign interest as sentiments improve on the resumption of economic activities.

According to RAM Ratings, another driving factor is the ample global liquidity from quantitative easing.

“Malaysian bonds have been popular, charting their third consecutive net foreign inflow in July by RM7.1 billion,” it said in a statement today.

“The consistent inflow had largely offset panic selling during the height of the pandemic, with the YTD-July net inflow currently standing at RM1.3 billion.

“Consequently, foreign holdings of MGS/GII rose to 23.5 per cent of the total outstanding in July, close to the 23.9 per cent in February – pre-Covid-19. In contrast, the participation rate in Thailand and Indonesia stayed on a downtrend despite also seeing a consistent return of foreign demand.

In line with robust foreign demand, RAM recapped that yields trended down through July. This broadbased decline was also driven by Bank Negara Malaysia’s fourth rate cut this year, for a total of 125 basis points (bps) year to date.

The benchmark interest rate stands at 1.75 per cent – the lowest since the introduction of this policy tool in 2004.

Concurrently, the benchmark 10-year Malaysian Government Securities (MGS) yield fell to a record low of 2.62 per cent as at end-July (dropping by 32.2bps month-on-month(m-o-m)) while the shorter term one-year MGS hit a fresh low of 1.78 per cent ( dropping 26.9bps m-o-m).

“Looking ahead, we expect domestic bond yields to stay suppressed amid the abundance of global liquidity and not discounting another round of Overnight Policy Rate (OPR) cuts by BNM.

“We think the OPR could possibly end 2020 at 1.50 per cent,” it opined.