MGS and GII Yield To Move Sideways As Investors Digest BNM’s Rate Hike

MGS and GII yield mostly increased last week, moving between -0.4bps to 3.5bps overall. The 10Y MGS yield rose by
9.1bps to 4.098% on Sep 7, its highest level in two months, before closing the week at 4.040% (+3.3bps).

Demand for domestic bonds remained generally pressured last week as BNM raised rates by another 25bps to 2.50% and
as global bond yields trended higher. On the other hand, foreign portfolio inflows returned to the bond market in August, recording the largest net inflow in eight months (RM5.6b; Jul: -RM3.5b).

According to Kenanga, domestic yields may trend rangebound-to-lower this week, as the market settles following BNM’s recent rate hike and looks ahead to the next US FOMC meeting (Sep 20 – 21). Foreign demand may be slightly pressured in September, following the return of global risk-aversion, amid the Fed’s continued hawkish stance, and due to falling MGS-UST yield differentials; the 10Y MGS-UST yield spread fell to 73.0bps last week (previous week: 81.8bps). \

However, Kenanga still expects bond inflows to improve in 4Q22, on fewer government bond maturities, further BNM rate hikes, and as the pace of Fed hikes ease.

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