Foreign demand for Malaysian bonds to remain supported by sturdy fundamentals even as Fed maintains tightening bias

Published on 23 Sep 2026.

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Foreign investors returned strongly to Malaysia’s bond market in August, recording net inflows of RM15.9 bil (July: net outflow of RM5.6 bil), the largest monthly inflow since September 2013. The rebound was driven primarily by robust foreign investor demand for Malaysian Government Securities (MGS) and Government Investment Issues (GII), which registered net purchases of RM10.6 bil, the biggest inflow since May 2025. Foreign appetite for corporate bonds also remained firm last month, extending the net inflow streak to six months. Net purchases of corporate bonds were exceptionally strong at RM4.8 bil in August, marking a record monthly foreign inflow into the corporate bond market.

August’s strong performance came despite still elevated uncertainty in global bond markets over the global rates outlook and concerns about duration exposure amid the US government’s fiscal trajectory. Nevertheless, Malaysia's relatively stable macroeconomic fundamentals and attractive yield profile continued to support foreign interest last month.

The 10-year MGS yield rose to 3.91% as at end-August from 3.75% as at end-July, reflecting spillover from upward pressure on global yields and a reassessment of duration risk across fixed-income markets. The increase at the shorter end of the yield curve was more moderate, with the 3-year MGS yield rising to 3.42% from 3.35% over the same period. Consequently, the yield curve steepened further, likely reflecting greater investor caution towards adding duration.

Bond yields came under further upward pressure heading into September after the US Federal Reserve (Fed) raised the federal funds rate by 25 basis points to 3.75%-4.00% at its September meeting. The Fed maintained a cautious stance, citing elevated inflation and resilient economic activity despite signs of moderating price pressures. Its updated projections also pointed to a higher policy rate path than previously anticipated, with markets increasingly pricing in the possibility of another rate increase before year-end. Bond yields, particularly on the longer-end, climbed during the first half of September, where the 10-year MGS and UST yields rose above 4.2% and 5.0%, respectively, around mid-month before retreating to 3.94% and 4.96% as at 22 September.

Looking ahead, market attention will remain focused on upcoming US inflation and labour market data, which will shape expectations for the Fed's October and December policy meetings. Signs of persistent inflation or continued labour market strength could reinforce expectations of another rate hike and maintain upward pressure on global bond yields. Nevertheless, foreign investor interest in Malaysia's bond market should remain supported by resilient domestic fundamentals. Foreign investors remained net buyers during the first 17 days of September, recording RM3.5 bil of net inflows.

 

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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