MGS and GII yield decreased overall this week, moving between -7.9bps to -0.3bps. The 10Y MGS yield initially fell by
6.8bps to 4.311% on Nov 2, before closing at 4.338% (-4.1bps).
Demand for govvies improved ahead of the US FOMC and BNM MPC meetings this week, as investors began to anticipate a
possible pivot by the Fed and BNM. However, yields jumped on Thursday after Fed Chair Powell indicated that US interest rates would likely reach a higher-than-expected terminal rate, and BNM hiked by 25bps as expected.
Domestic yields will likely trend higher next week, steered by rising US treasury yields and as investors digest BNM’s rate hike. Accordingly investment house, Kenanga has raised its end-2022 forecast for the 10Y MGSslightly to 4.40% from 4.35% previously, primarily due to expectations of a higher 10Y UST yield with our forecast now at 4.10% compared to 3.80% earlier.
The local debt market may face further foreign selling pressure in November following the Fed’s fourth consecutive 75bps rate hike. Global risk aversion is unlikely to alleviate in the near-term given the Fed’s assertion that US interest rates will ultimately be higher than expected, even if the pace of hikes does slow down.
