Kenanga noted that the MGS and GII yields mostly decreased this week, moving between -13.6bps to 4.3 bps overall. The 10Y MGS yield fell by 11.5 bps to 4.175%, its lowest level since September.
Domestic yields trended rangebound for most of the week before turning considerably lower following the appointment of Datuk Seri Anwar Ibrahim as Malaysia’s 10th Prime Minister and the confirmation of a unity government led by Pakatan Harapan. This brought domestic yields in line with broadly lower global bond yields.
The research house opines that the yields may continue to fall over the next week as markets react to the positive political catalyst and track lower global bond yields. As a result, Kenanga has revised its end-2022 10Y MGS yield forecast to 4.25% from 4.40% previously.
Foreign demand for Malaysian bonds could rebound in the near term following the resolution of the domestic political impasse and amid a marked global risk-on-turn as markets continue to price in a less hawkish Fed. Downside risks remain in 1Q23 stemming from a widening divergence in BNM-Fed policy rates but expect foreign capital flows to chart a strong return from 2Q23 onwards as most major central banks likely complete their tightening cycles.
