Narrowing 10-year UST-MGS yield spread in February should boost MGS appeal to foreign investors

Published on 20 Feb 2025.

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The yield differential between the 10-year UST and 10-year MGS has trended down since mid-January, declining from 93.4 bps on 14 January to 75.6 bps as at end-January. This trend continued into early February, with the spread narrowing further to 70.5 bps as of 19 February. The tighter yield differential partly contributed to stronger foreign investor interest in January. Following three consecutive months of net selling, foreign investors turned net buyers last month, the overall foreign fund inflow coming up to RM1.2 bil, primarily fuelled by MGS and GII (net inflow: RM2.0 bil). 

The decreasing yield spread resulted largely from the downward trend seen in 10-year UST yields. In early January, mid- to longer-term UST yields jumped sharply, the 10-year UST yield surging to 4.79% on 13 January 2025, its highest level since 31 October 2023. This was primarily due to the paring back of market expectations of a US rate cut after the Federal Reserve signalled a pause pending more visibility on the impact of proposed tariffs, as seen in the December dot-plot. Strong labour market conditions and the still sticky inflation rate further fuelled investor selloffs. Investor sentiment however improved in the latter half of the month, the 10-year UST yield falling sharply to 4.58% as at end-January.

Investor demand was seen to remain relatively intact in early February, with the 10-year UST yield continuing its downtrend to 4.53% as of 19 February. Should the UST-MGS yield differential narrow further as risk appetite continues to improve, the near-term appeal of Malaysian bonds should increase.

 

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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