Published on 24 Nov 2021.
Foreign net purchases of Malaysian bonds rebounded in October despite the broad market selloff over the same period. The overall foreign net inflow accelerated to RM2.9 bil in October from RM0.6 bil the preceding month. This was mainly led by the resurgence in demand for MGS and GII which recorded a net inflow of RM5.4 bil, reversing the net outflow of RM215.7 mil in September.
Selling pressure drove domestic bond yields sharply upwards across the board for the second consecutive month in October as investors continue to price in a prospective US policy rate hike in 2022. Yields on 5-year and 10-year MGS respectively jumped 34 bps and 22 bps m-o-m in October after having surged 24.3 bps and 17.4 bps m-o-m in September. This pushed the benchmark 10-year MGS yield to 3.62% as at end-October, its highest level since June 2019. However, the yield spread between 10-year MGS and UST securities remained wide, hovering around the 200 bps mark. The attractive yield differential is likely to have buoyed foreign interest last month.
The yield uptrend was sustained through November as the Fed announced it would begin trimming asset purchases later this month, confirming market expectations. UST yields were also pressured by stronger than expected US inflation of 6.2% in October, which triggered bets of an earlier start to interest rate normalisation than previously anticipated.
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