MGS and GII yields mostly decreased this week, moving between -4.6 bps to 3.4 bps overall. The 10Y MGS yield fell by 5.7 bps to 3.949% on Jan 10, before turning slightly higher to 3.968% by yesterday (-3.8 bps).
Local sovereigns mostly continued to rally this week, partly steered by resurgent global demand for bonds, amid expectations of cooler inflation in the US and thus a less hawkish Fed. Global risk-aversion appears to have eased, which may spell the return of foreign demand for MGS. This would contrast with persistent foreign outflows from the bond
market in December (-RM0.9b; Nov: -RM1.0b).
Kenanga Investment said the domestic yields may trend slightly lower this week, driven by a further decline in US Treasury yields and a recovery in foreign demand. This downtrend may still be partly capped ahead of BNM’s first policy meeting of the year (Jan 18 – 19), where it expects the OPR to be raised by 25 bps to 3.0%. Despite the nascentreturn ofrisk-on sentiment, there remains a risk that Malaysian bonds could record mild foreign outflows in 1Q23, as major central banks complete their tightening cycles.
With that said, it reckons that foreign demand would chart a firmer recover from 2Q23 onwards after most central
banks finish hiking and markets predict Fed rate cuts
