Foreign investors return to Malaysian bonds amid Fed’s dovish shift

Published on 19 Aug 2024.

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Foreign holdings of ringgit bonds surged by RM7.8 billion in July 2024 (June 2024: foreign outflow of RM576.8 mil), the largest volume of monthly foreign buying since July 2023, primarily driven by an influx of RM6.5 billion into MGS and GII (June 2024: foreign outflow of RM1.1 bil). This was spurred by improved market sentiment amid dovish remarks by the US Federal Reserve (Fed) and a softer than expected US inflation print, which convinced the market that rate cuts would start as early as September.

The Fed’s accommodative stance contributed to a narrowing of the yield differential between the 10-year MGS and the 10-year UST to 35.2 bps as at end-July (end-June: 48.1 bps), as UST yields declined more rapidly than MGS yields. UST and MSG yields respectively fell 27.0 bps and 14.1 bps m-o-m to 4.09% and 3.74% (end-June: 4.36% and 3.88%). This trajectory makes Malaysian bonds more appealing to foreign investors, which partially contributed to the foreign fund inflows last month. 

The positive sentiment seen in July took a sharp turn in early August as a sudden escalation in concerns over a potential US recession and the big unwinding of yen carry trade plunged global financial markets into turmoil. As global equity markets experienced steep selloffs, investors turned to UST securities as a safe-haven hedge. Notwithstanding the volatile yield trend, the 10-year UST yield stood lower at 3.89% while the 10-year MSG yield rose to 3.81% as of 16 August. The slump in the USD amid economic concerns helped boost the ringgit’s valuation against the greenback, seeing it appreciate to 4.44 against the USD as of 16 August (end-July: 4.61; end-June: 4.72).

 

Analytical contact Woon Khai Jhek, CFA (603) 3385 2512 khaijhek@ram.com.my		Media contact Sakinah Arifin (603) 3385 2500 sakinah@ram.com.my
Nur Rasyidah Abd Karim (603) 3385 2490 rasyidah@ram.com.my

 

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