Foreign interest in Malaysian bonds likely to remain weak amid heightened uncertainties over US interest rate outlook

Published on 19 Nov 2024.

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Foreign investor demand for Malaysian bonds is likely to stay soft in November as markets remain on edge over increased uncertainties following the change in US administration. Many of President-elect Donald Trump’s policies like tax cuts and import tariffs, which are inflation inducing, raise the probability that US Federal Reserve (Fed) rate cuts may not be as forthcoming heading into 2025. Based on its latest dot plot released in September, the Fed projects another 25 bps cut in December 2024 and four more such cuts in 2025. 

The 10-year UST yield rose sharply in 1H November, reaching 4.42% as of 18 November, from 4.28% as at end-October. The 10-year MGS yield, however, inched down slightly to 3.87% from 3.93% over the same period. This widening UST-MGS yield differential, coupled with a strengthening US dollar, will likely make ringgit-denominated assets less appealing to foreign investors. The ringgit weakened to 4.47 against the USD as of 18 November, compared to 4.40 at the end of October.

The dampened sentiment in November reinforces the market’s scale-back of rate cut bets in October amid still robust economic data released last month. The market-assigned probability of US interest rates staying unchanged in December rose to around 24% as of end-October from 0% one month prior, according to CME FedWatch Tool data. The market selloff saw the Malaysian bond market recording a significant foreign net outflow of RM11.4 bil in October (September: net inflow of RM1.0 bil), the largest single-month foreign selling since March 2020. This outflow was particularly pronounced for MGS and GII (RM10.6 bil), signalling a cautious stance by foreign investors as global yields climb.

 

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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