Growing rate cut bets reignited foreign investor interest in MGS and GII in November

Published on 13 Dec 2023.

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Foreign investors turned net purchasers in November after three successive months of net selling. The overall net foreign inflow amounted to RM5.4 bil (October: net outflow of RM2.6 bil), led by MGS and GII (RM5.6 bil). The rebound in investor appetite for emerging market bonds was fuelled by growing bets that major global central banks will cut rates in the first half of next year. The market-assigned probability of a rate cut at the March 2024 Federal Open Market Committee meeting rose to about 43% as of end-November 2023, up from around 8% a month earlier, according to CME FedWatch Tool data.

The better investor sentiment triggered a rally in regional bond markets, tracking price gains in the US Treasury market. The 10-year UST yield plunged 51.0 bps m-o-m to 4.37% as of end-November. To a milder extent, the 10-year MGS, Indonesia government bond and Thailand government bond yields were down m-o-m by 28.3 bps, 44.6 bps and 27.5 bps, respectively, at 3.82%, 6.75% and 2.97% on the same date. 

Bond yields largely trended further downwards in early December, albeit at a more moderate pace, as traders appeared to have tempered their rate cut bets. The 10-year UST and MGS yields stood at a respective 4.20% and 3.80% as of 12 December. The ringgit trended around 4.67 against the greenback in early December after appreciating to 4.65 as at end-November (end-October: 4.77) on the back of a weakening US dollar.

 

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

Media contact Sakinah Arifin (603) 3385 2500 sakinah@ram.com.my

 

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