MGS And GII To Trend Higher On BoJ’s Hawkish Turn

MGS and GII yields mostly increased this week, moving between -1.3 bps to 5.3 bps overall. The 10Y MGS yield rose
by 3.0 bps to 4.037%, whilst the 3Y GII fell to 3.748%.

Local bonds trended higher this week amid improving domestic political stability after Prime Minister Anwar Ibrahim’s successful vote of confidence. Furthermore, govvies continued to track global bond yields, rising on Tuesday following the Bank of Japan’s (BoJ) surprising move to tweak its yield curve controls.

Kenanga is of the view the yields may trend rangebound-to-higher next week, as markets continue to digest the BoJ’s hawkish tilt whilst other global catalysts remain sparse ahead of the New Year. Meanwhile, some focus will be on Malaysia’s inflation reading for November due later.

Foreign demand for Malaysian bonds may remain mildly pressured in the near term as global risk sentiment falters
following the BoJ’s unexpectedly hawkish shift. Likewise, global risk-aversion will likely linger until most major central
banks complete their tightening cycles, with the US Fed and ECB only expected to finish hiking by 2Q23.

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