MGS and GII yields fell this week, moving between -27.2bps to -12.7 bps overall according to Kenanga the 10Y MGS yield decreased by 25.2bps to 3.716%, reaching its lowest level since March 2022.
Domestic yields were already on a downtrend early this week, in line with falling global bond yields, but plunged significantly
following BNM’s unexpected decision to maintain the OPR at 2.75%. The central bank stated that the decision was made to assess the cumulative impact of prior rate hikes. Yields may continue to fall next week as markets digest BNM’s surprise decision, led by a decline among short and medium term govvies. As a result, Kenana said it has revised down its 10Y MGS
yield target for 2023 to 3.45% from 3.70% previously, on the expectation that BNM will now maintain the OPR at 2.75% for
the rest of the year.
The local debt market may still record mild outflows in 1Q23 as major central banks continue to raise rates, the OPR-FFR
differential widens further, and with the 10Y MGS-UST spread narrowing to 32.5 bps (previous week: 52.8 bps). However, the research house still expect foreign demand to recover from 2Q23 onwards, after major central banks finish hiking, and for more substantial inflows to return over 2H23 as markets anticipate Fed rate cuts for the end of the year.
