Narrow MGS-UST yield differential to impinge on foreign buying

Published on 22 Jun 2023.

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Foreign investors remained net buyers of Malaysian bonds for the fifth successive month in May 2023, charting a net inflow of RM3.0 bil (April: RM1.5 bil) on expectations of the Fed ending its rate hike cycle. The take-up was primarily for MGS and GII, after a lacklustre April. Foreign buying of MGS/GII in 1Q 2023 comprised largely of ‘non-sticky’ investors, while ‘sticky’ investors largely sold down. 

While the Fed decided to leave the interest rate unchanged at June’s Federal Open Market Committee meeting, the latest ‘dot-plot’ projections suggest that committee members anticipate another two 25 bps hikes this year. Further rate hikes will continue to compress yield differentials between UST and MGS, if BNM maintains the OPR at 3.00%. With the average 10-year MGS-UST yield spread sitting at a marginal 2.1 bps in 1H June (May: 17.7 bps; April: 39.6 bps), the narrow differential will likely dampen the appeal of Malaysian bonds in the near term.


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Publication Date Published Category
Bond Market Monthly - June 2023 22-Jun-2023 Bond Market Monthly View PDF