Foreign appetite for Malaysian bonds returned in June, further rate cut in the cards

PETALING JAYA: Foreign buyers returned to the Malaysian bond market, mopping up RM11.6 billion of domestic bond securities in June, which resulted in the biggest monthly net foreign inflow since March 2016.

RAM Ratings noted that the return of foreign interest reflects declining risk aversion activities as lockdown ease in this region.

The ratings agency pointed out increased global liquidity amid central banks’ quantitative easing measures may have also encouraged more foreign inflows.

“Yields, however, remained elevated in the first half of June reflecting supply risks arising from the sharp uptick of Malaysia’s projected fiscal deficit after the latest round of additional stimulus programmes that will be funded domestically,” it said in a statement today.

RAM Ratings highlighted concerns over the implications of a greater supply of government issues this year pushed the 10-year Malaysian government securities (MGS) yield up to a peak of 3.12% on June 9 from 2.87% as of end-May.

It also surmised that investors may have demanded a risk premium due to the IMF’s bleaker global growth projection and the revision of S&P Global Ratings’ outlook on Malaysia’s sovereign rating, from stable to negative in June.

The ratings agency noted yields began to gradually retreat towards the second half of June, as the possibility of another overnight policy rate (OPR) cut at the monetary policy committee (MPC) meeting on July 7 loomed.

With the OPR reaching a record low of 1.75% following the 25 bps cuts, bond yields nosedived across the maturity spectrum in early July.

Subsequently, this has resulted in the benchmark 10-year MGS yield falling 20.8 bps between end-June and July 16.

RAM Ratings highlighted that the prospect of further monetary loosening is envisaged to keep a lid on yields in the near term.

Looking ahead, it expects another 25 bps cut with the OPR possibly ending the year at 1.50%.

source https://www.thesundaily.my/business/foreign-appetite-for-malaysian-bonds-returned-in-june-further-rate-cut-in-the-cards-JI2912649