Heightened uncertainties to drive continued foreign selling of Malaysian bonds in October

Published on 22 Oct 2025.

Share Tweet Email

Foreign investors returned to net selling of Malaysian bonds in September, reversing the short-lived inflow in August. Overall net foreign fund outflows reached RM6.8 bil last month, marking the largest foreign investor withdrawal since October 2024 and more than offsetting the RM3.0 bil net inflow in August. Outflows were concentrated in MGS and GII, which together accounted for RM6.4 bil. Consistent with the market selloff, the benchmark 10-year MGS yield rose 6.5 bps m-o-m as at end-September.

The foreign investor retreat followed weakening expectations for larger US rate cuts, amid stronger-than-expected US economic data and a cautious tone by the US Federal Reserve (Fed) Chairman. Although the Fed cut its policy rate by 25-bps on 17 September, the 10-year UST yield only fell modestly by around 7 bps m-o-m as at end-September. It dipped to about 4.04% in the lead up to the September Federal Open Market Committee (FOMC) meeting (end-August: 4.23%) but trended back up to 4.16% as at end-September as prospects for more aggressive rate cuts waned.

Some of the foreign outflow could also be partially attributed to early portfolio repositioning by investors in reaction to an impending reduction in the weighting of Malaysian bonds within a major global emerging market index. Around mid-September, Bloomberg citing a client notice, reported that JPMorgan Chase intends to lower the weight cap for its flagship GBI-EM Global Diversified index to 9% from 10% in 1H 2026. Malaysian government bonds had an index weight of 9.9% as of 1 September 2025, implying reduced investor holdings as the new cap is phased in. At the same time, global investor confidence was dampened by growing US fiscal concerns as confidence fades regarding the Congress’s ability to pass the necessary funding legislation to avert a government shutdown before the start of a new fiscal term on 1 October.

Looking ahead, foreign investor interest for Malaysian bonds is expected to remain subdued in October amid lingering uncertainties over the longer-term rate cut prospects, even as markets continued to price in a 25-bps reduction at the upcoming FOMC meeting later this month. According to CME FedWatch data, the probability of a cut remained high at 99% as of 21 October, up from 92% a month earlier. The protracted US government shutdown and continued concerns over US fiscal health will likely further fuel risk aversion. The fiscal impasse in Washington has also delayed the release of the September US Consumer Price Index (CPI) report, a key indicator for the Fed’s inflation outlook. The report is now expected to be published this Friday, just days before the October 2025 FOMC meeting, adding another layer of uncertainty for markets. Foreign holdings of Malaysian bonds have already edged lower in the first half of this month, falling to RM285.8 bil as at 14 October from RM287.0 bil as at end-September. 

 

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

 

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 2025 by RAM Rating Services Berhad
All rights reserved. This material may not be published, reproduced, broadcast, rewritten or redistributed without prior permission.