Published on 20 Mar 2020.
Rising market fears of a global recession on the horizon prompted a market frenzy in recent weeks in major financial markets around the world. Even as central banks continue to cut rates and ease monetary policy, a flight to safe-haven assets prevailed, setting off a rapid spike in 10-year MGS yields to 3.58% on 19 March from 2.84% at end-February. Both Bank Negara Malaysia (BNM) and the US Federal Reserve (Fed) cut their policy rates in March. In addition, the Fed supplemented its action with the launch of a USD700 bil quantitative easing programme and the ECB recently followed suit with an aggressive EUR750 bil Pandemic Emergency Purchase Programme for both public and private sector securities, to last until the end of 2020.
The move to safety so far this month follows heavy offloading by foreign investors in February that was triggered by the unbridled spread of COVID-19 throughout the world and the political upheaval in the country. A staggering RM8.1 bil of net outflows was seen in February. In terms of supply, issuance of MGS/GII and corporate bonds remained robust, with RM12.0 bil and RM10.7 bil, respectively, in February.
Looking ahead, the current spike in MGS yields is likely to be a knee-jerk reaction and yields are likely to retreat on account of further global monetary policy easing, including another potential rate cut by BNM in coming months.
Woon Khai Jhek, CFA
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