April saw the local bond market record net foreign outflow for the second consecutive month, albeit at a smaller magnitude of RM2.2 billion compared with RM4 billion in the previous month amid the global bond rout as the market braced for aggressive interest rate hikes by the US Federal Reserve (the Fed). The net outflows were mainly contributed by Malaysian Government Securities (MGS) at RM2.1 billion (Mar: -RM3.2 billion), followed by outflows from Government Investment Issues (GII) at RM490 million (Mar: -RM951 million) and corporate bonds at RM488 million (Mar: -RM347 million). Nevertheless, Malaysian Islamic Treasury Bills (MITB) and Malaysian Treasury Bills (MTB) registered net inflows of RM792 million (Mar: RM1 billion) and RM114 million (Mar: -RM541 million) in April.
With regard to composition, the share of foreign holdings to total outstanding in MGS shrank further to 37.6% (Mar: 38.8%) , the lowest since June 2020. Meanwhile, foreign holdings of GII and corporate bonds contracted slightly to 10.3% (Mar: 10.4%) and 1.7% (Mar: 1.8%) in April. In contrast, the net inflows of MTB and MITB expanded the share of their foreign holdings to 54.9% (Mar: 53.7%) and 20.4% (Mar: 17.7%).
Total cumulative foreign holdings in the local bond market shrank further to RM380 million for the first four months of 2022, significantly lower than the cumulative inflows of RM23.1 billion from January to April 2021. In April, MGS and GII cumulative flows YTD turned negative at RM219 million and RM101 million.
Total MGS/GII outstanding reached RM934.8 billion at end-April, representing a growth of 11.4% y-o-y. Net issuance throughout the month turned positive at RM8.5 billion (March: -RM4.0 billion), propelled by the MGS segment where no bond redemption was recorded. New issuance of MGS papers increased to RM10.0 billion from RM8.5 billion recorded in the previous month. Meanwhile, in the GII segment, new issuance came in higher at RM9.5 billion (March: RM5.0 billion) but was outpaced by a relatively high volume of maturities at RM11.0 billion.
In April, local gov’s remained under heavy selling pressure and booked a hefty monthly loss as the global bond rout intensified. The bearish tone in the bond market was further amplified amid the acceleration of inflation in major economies, which in turn sparked jitters about more aggressive Fed rate hikes and a slowing global economy. The beaten-down ringgit, which briefly touched its lowest level in almost two years at 4.37/USD on April 27, also contributed to negative sentiments. The broad selling pushed MGS yields significantly higher by 38 bps to 67 bps m-o-m and settled at their highest level in more than two years. Of note, the 10y MGS yield closed the month at 4.38%, the highest since December 2016.
