Lacklustre Interest In Local Currency EM Bonds

Lofty US interest rates continue to sideline demand for local currency EM bonds. Given the tight average spread of just 46 bps between MGS and UST yields in October, foreign investors continue to trim their ringgit bond holdings.

RAM notes the total net outflow surged to RM6.3 bil (September: RM0.4 bil) – the biggest monthly outflow since March 2020. Similarly, last month’s government bond auctions also drew scant interest. All three MGS and GII tenders registered bid-to-cover ratios of less than 2 times, less than the average of around 2.3 times so far in 2022.

With recent US data and the Fed Chair hinting at a slower pace of tightening moving ahead, the rating agency expects foreign buying of ringgit bonds to progressively normalise next year.

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