Foreign investors pare holdings of Malaysian government bonds in September

Published on 21 Oct 2026.

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Foreign investors turned net sellers of Malaysian bonds in September amid a sharp repricing in global bond markets, as the US Federal Reserve (Fed) raised its policy rate during the month. Net foreign outflows amounted to RM1.8 bil, reversing the strong RM15.9 bil net inflow recorded in August. The decline was driven entirely by MGS and GII, which recorded combined net outflows of RM5.0 bil (MGS: RM1.8 bil; GII: RM3.2 bil), compared with RM10.6 bil of net inflows in August. The GII outflow coincided with sizeable net redemptions in that segment, as RM29.5 bil of maturities far outstripped RM10.0 bil of gross issuance, resulting in a negative net issuance of RM19.5 bil. Part of the decline in foreign holdings may therefore reflect maturing bonds rather than outright selling. The overall outflow was partly cushioned by continued foreign interest in other segments of the domestic bond market. MTB and MITB recorded RM1.3 bil in net foreign inflows, marking the sixth consecutive month of foreign buying, while corporate bonds and sukuk attracted a further RM1.9 bil, extending their net inflow streak to seven months.

The reversal in government bond flows coincided with a broad rise in global and domestic bond yields, which was more pronounced in the US. The 10-year UST yield climbed 54 bps m-o-m to 5.29% as at end-September, from 4.75% as at end-August, while the 10-year MGS yield rose by a comparatively smaller 19 bps to 4.10%, from 3.91%. Yields have since eased somewhat, with the 10-year UST yield retracing to 5.15% and the 10-year MGS yield falling to 3.89% as at 19 October, the latter more than unwinding its September increase. Foreign holdings have also recovered in early October, rising by RM3.2 bil between end-September and 14 October, more than reversing September's decline. The increase was led by corporate bonds, where foreign holdings climbed a further RM3.0 bil, while holdings of government securities edged up by RM0.2 bil.

US inflation picked up in September, with headline CPI inflation accelerating to 3.7% from 3.4% in August, while non-farm payroll employment increased by just 29,000. The combination of firmer headline price pressures and softer employment growth has complicated the Fed’s policy rate outlook. Against this backdrop, market pricing has shifted markedly in favour of the Fed keeping rates unchanged at its October policy meeting. As at 20 October, markets assigned about an 83% probability that the federal funds target range would remain at 3.75%–4.00%, up from around 42% a month earlier, according to the CME FedWatch Tool. That said, a further pickup in inflation could see the Fed turn more hawkish, potentially triggering renewed sell-off in the bond markets that may weigh on foreign demand for 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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