Foreign investors pare Malaysian government bonds as US Treasury yields surge

Published on 17 Aug 2026.

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A sharp rise in US Treasury (UST) yields in July, particularly at the longer end of the curve, likely motivated foreign investors to reduce their exposure to Malaysian government bonds. Increased expectations of US Federal Reserve rate hikes and concerns over the country’s fiscal outlook pushed the 10-year UST yield up 31 bps m-o-m to 4.75%, its highest level since mid-January 2025. In contrast, the Malaysian Government Securities (MGS) yield rose just 11 bps to 3.75% as at end-July, widening the yield gap between the two benchmarks to nearly 100 bps from 80.0 bps in June. The wider differential likely encouraged investors to shift funds into US fixed-income assets.

Against this backdrop, foreign investors turned net sellers in Malaysia’s bond market, withdrawing RM5.6 bil in July after recording a RM4.9 bil net inflow in June. Government securities bore the brunt of the sell-off, with MGS and Government Investment Issues registering RM7.8 bil of net outflows, compared with RM2.6 bil the previous month.

Foreign holdings of MGS were also affected by limited reinvestment opportunities following RM20.0 bil of maturities during the month, which resulted in negative net issuance of RM10.0 bil. Nevertheless, foreign appetite for corporate bonds and shorter-term government papers remained intact. Corporate bonds registered a fifth consecutive month of net foreign purchases, attracting RM801.6 mil in July, while Malaysian Treasury Bills and Malaysian Islamic Treasury Bills posted RM1.3 bil of inflows, extending their foreign buying streak to four months.

External pressures eased somewhat in early August, as softer than expected US labour market conditions and moderating inflation scaled back expectations of further near-term monetary tightening. CME FedWatch data showed that the probability of the Federal Reserve keeping rates unchanged at 3.50%-3.75% at its September meeting rose to 69.9% as of 17 August, up from 42.2% a month earlier. Reflecting the shift in market expectations, the 10-year UST yield eased to 4.68% as at 14 August, narrowing the UST-MGS yield spread to around 89.7 bps. This helped improve the relative appeal of Malaysian government bonds.

 

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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