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Malaysian bonds benefit from sustained foreign demand in July

Published on 19 Aug 2020.

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Regional bond markets have seen a recent resurgence of foreign interest as sentiments improve on the resumption of economic activities. 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 (+RM7.1 bil). 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 bil.  Consequently, foreign holdings of MGS/GII rose to 23.5% of the total outstanding in July, close to the 23.9% 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, yields trended down through July. This broad-based decline was also driven by BNM’s fourth rate cut this year, for a total of 125 bps year to date. The benchmark interest rate stands at 1.75% – the lowest since the introduction of this policy tool in 2004. Concurrently, the benchmark 10-year MGS yield fell to a record low of 2.62% as at end-July (-32.2 bps m-o-m) while the shorter-term 1-year MGS hit a fresh low of 1.78% (-26.9 bps 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 OPR cuts by BNM. We think OPR could possibly end 2020 at 1.50%.

 

Analytical contact
Woon Khai Jhek, CFA
(603) 3385 2512
khaijhek@ram.com.my 

Media contact
Padthma Subbiah
(603) 3385 2577
padthma@ram.com.my

 

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Established in 1990, RAM Ratings is a leading credit rating agency registered under the Securities Commission’s Guidelines on Registration of Credit Rating Agencies, 2011. In addition to the provision of credit ratings for corporate bonds and sukuk and their issuers, RAM Ratings also provides research and publications on Islamic finance, fixed income and macro-economic and industry analysis as well as data analytics relating to credit risk, counterparty assessments and other related domains. 

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Publication Date Published Category
Bond Market Monthly - August 2020 19-Aug-2020 Bond Market Monthly View PDF

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