Foreign investors offloaded Malaysian bonds in June as US tariff uncertainty heightens risk aversion

Published on 18 Jul 2025.

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Foreign holdings of Malaysian bonds fell by RM5.4 bil in June, reversing strong inflows of RM13.4 bil recorded in May, amid weaker investor sentiment over when US reciprocal tariffs will take effect as the initial deadline looms. This was primarily driven by selloffs of both long-term MGS and GII and short-term MTB and MITB, which respectively amounted to RM5.3 bil and RM1.0 bil. Conversely, corporate bonds continued to attract foreign investments, which posted a net inflow of RM903.4 mil (May: RM550 mil). However, this is only the second month in 2025 to see an overall net foreign outflow, after February’s RM1.1 bil. Foreign investors remained big net buyers in 1H 2025, contributing a cumulative net inflow of RM21.4 bil in YTD-June 2025.

Foreign investor interest could stay muted in July as the 1 August deadline for higher US reciprocal tariff rates looms and uncertainty remains over whether Malaysia can strike a deal before then. Growing expectation of a longer pause in US monetary policy easing, given the hotter than anticipated July inflation print, also dulls the attractiveness of emerging market assets. Markets currently expect the US Federal Reserve (Fed) to keep the policy rate unchanged at 4.25%-4.5% at the upcoming July Federal Open Market Committee meeting. A rate reduction is now envisaged for September, with the market-assigned probability of a cut increasing to 48.3% on 16 July from circa 30% on 9 July, according to CME FedWatch Tool data.

Waning hopes of a Fed rate cut this month strengthened the greenback. As at 17 July, the ringgit weakened moderately to 4.25 against the US dollar (end-June: 4.21).

 

Analytical contact Woon Khai Jhek, CFA  (603) 2708 8286 khaijhek@ram.com.my		Media contact Sakinah Arifin (603) 2708 8212 sakinah@ram.com.my
Nur Rasyidah Abd Karim (603) 2708 8208 rasyidah@ram.com.my

 

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