UST yields rose in early December as investors temper expectations of US rate cuts next year

Published on 19 Dec 2024.

Share Tweet Email

Recent changes over the US interest rate outlook are expected to keep UST yields elevated. The US Federal Reserve (Fed)’s latest projection indicates a median federal funds rate (FFR) of 3.9% by the end of 2025, up from the previous projection of 3.4% in September. Leading up to the Fed’s meeting, the 10-year UST yield rose sharply in the first half of December, reaching 4.50% as of the 18th of the month compared to 4.18% as at end-November, reflecting market expectations that Fed rate cuts may not be as forthcoming heading into 2025.

This shift in investor expectations mirrors trends seen in 1H November. The 10-year UST yield jumped to 4.43% as of 15 November from 4.28% as at end-October, before retracing to 4.18% as at end-November following the dovish tone in the Fed’s September meeting minutes. Foreign demand for Malaysian bonds, however, remained soft last month, leading to a net foreign outflow of RM1.1 bil (October: RM11.4 bil). Outflows were primarily driven by foreign selling of MGS and GII, amounting to RM1.8 bil.

Looking ahead, foreign investor demand for Malaysian bonds is likely to stay subdued given the reduced likelihood of Fed rate cuts next year. The wider UST-MGS yield differential, which stood at 67 bps as of 18 December compared to 35.7 bps as of end-November, will likely lessen the near-term appeal of Malaysian bonds to foreign investors. Additionally, concerns around political factors, including President-elect Trump’s second term starting 2025, are expected to keep markets cautious.

 

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

 

About RAM Rating Services Berhad (RAM Ratings)

Established in 1990, RAM Ratings is a leading credit rating agency registered under the Securities Commission’s Guidelines on Credit Rating Agencies. In addition to the provision of credit ratings for corporate bonds and sukuk and their issuers, RAM Ratings also provides research and publications on Islamic finance, fixed income and macro-economic and industry analysis as well as data analytics relating to credit risk, counterparty assessments and other related domains. 

Disclaimer

ALL INFORMATION IS PROVIDED “AS IS” WITHOUT WARRANTY OF ANY KIND. Although every reasonable care has been taken to ensure the accuracy, completeness and objectivity of the information contained in this Media Release, RAM Ratings makes no representation or warranty, whether express or implied, as to its accuracy, completeness and objectivity and accept no responsibility or liability relating to any losses or damages howsoever suffered by any person arising from any reliance on the views expressed or information in this Media Release. RAM Ratings assumes no obligation to update any information or statement contained herein, save for any information required to be disclosed by law.

Published by RAM Rating Services Berhad
© Copyright 2024 by RAM Rating Services Berhad
All rights reserved. This material may not be published, reproduced, broadcast, rewritten or redistributed without prior permission.