Rampant US Rate Hikes Dampen Appeal Of Emerging Ringgit Market Bonds, Says RAM

Steep U.S. interest rate hikes have made ringgit bonds less attractive to foreign buyers, according to RAM Rating Services Bhd (RAM Ratings).

The rating agency said foreign demand for Malaysian Government Securities (MGS) and Government Investment Securities (GII) weakened in September, with net outflows of RM2.5 billion in light of the US Federal Reserve’s continued aggressive stance in raising interest rates.

In a n note today (OCT 18) RAM cited that the 10-year UST yield jumped 68.0 bps m-o-m to 3.83% as at end-September, outpacing the 10-year MGS yield which rose 45.7 bps to 4.44% as at the same date.

Consequently, this has narrowed the differential between MGS and UST yields, reducing the appeal of ringgit bonds for foreign buyers. The rate differential persisted in October, where the UST yields continued to outpace the increase in the MGS yields.

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