Foreign buying of Malaysian bonds to remain lacklustre for rest of June

PETALING JAYA: Escalating worries over the Covid-19 outbreak in the United States, and the recent launch of the Penjana stimulus package totalling RM35 billion by the Malaysian government raised investors’ concerns about the wider fiscal deficit and debt levels, which in turn pushed up the 10-year MGS yield by 25.5 bps to a peak of 3.12% on June 9, before swiftly retreating below 3%.

According to RAM Ratings, since then, this benchmark yield has stayed above the level seen throughout May, on account of persistent foreign investor risk aversion, which suggests that foreign buying of Malaysian Government Securities (MGS) is likely to remain dull for the rest of June.

It noted that since the Penjana stimulus is expected to widen Malaysia’s fiscal deficit to 5.8%-6% of gross domestic product as the government intends to fund this deficit domestically, it has revised its MGS/GII issuance to RM155 billion-RM165 billion for 2020, from the previous RM135 billion-RM145 billion.

“Over the longer term, all-time low global interest rates amid liquidity-boosting measures by central banks would continue to suppress domestic bond yields.

“At its last Federal Open Market Committee meeting on June 10, the US Federal Reserve indicated that the benchmark short-term interest rate (i.e. the Federal Funds Rate) will remain near zero through 2022. Similarly, expectations of further Overnight Policy Rate cuts by BNM in 2H’20 would also keep a lid on domestic bond yields,” RAM added.

source https://www.thesundaily.my/business/foreign-buying-of-malaysian-bonds-to-remain-lacklustre-for-rest-of-june-AY2616615