Published on 19 Feb 2020.
Malaysian bond yields fell sharply across the board in January. The benchmark 10-year MGS yield declined 17 bps to 3.15%, its lowest level since January 2009. This followed Bank Negara Malaysia’s pre-emptive 25 bps OPR cut on 22 January, to mitigate downside risks arising from the volatile external environment and policy uncertainties. While market consensus - including RAM – points to at least one rate cut in 1H 2020, the earlier-than-expected OPR reduction had caught everyone by surprise. The immediate aftermath was a 13 bps drop in the 10-year MGS yield to 3.19%.
Meanwhile, the rapid spread of COVID-19 has exacerbated fears of dampened economic growth. The pandemic has taken a toll on various industries and disrupted supply chains, thus raising the prospect of even looser monetary policy. The epidemic has also triggered “flight to safety” sentiment, with investors flocking towards less risky fixed income assets. These factors had exerted downward pressure on bond yields, leading to a 41 bps plunge in benchmark 10-year US Treasury yields as at end-January. Despite this, the Malaysian bond market still posted a net foreign inflow of RM3.6 bil for the month (December 2019: RM8.1 bil).
Issuance of government bonds started off the year at a fairly robust pace, with RM10.0 bil of MGS and GII coming to the market in January. By contrast, corporate bond issuance was relatively lacklustre amid a seasonally slow month, amounting to only RM4.1 bil.
Woon Khai Jhek, CFA
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