MGS and GII yields mostly increased this week, moving between -1.0 bps to 7.4 bps overall. The 10Y MGS yield increased by 3.2 bps to 3.914%, whilst the 3Y MGS yield jumped 7.4 bps to 3.482% amid its reopening auction.
Demand for government bonds was mostly tepid as investors cautiously await the retabling of Budget 2023. Market sentiment was also negatively impacted by the considerably weaker-than-expected export growth for January (-14.4% MoM; Dec: 1.6%). Similarly, foreign demand was likely limited due to poor global risk appetite and rising global bond yields.
Yields may return to a downtrend next week, potentially buoyed by the retabled Budget 2023 and partly steered by lower global bond yields. Attention will also be on today’s release of January’s inflation figures; Kenanga said it expects it to continue trending lower (KIBB: 3.7% YoY; Dec: 3.8%). In the short term, foreign demand for domestic bonds may be muted due to prevailing global risk-aversion and narrow yield spreads against developed market bonds.
However, the research house said it still anticipates foreign inflows to recover strongly and stabilise starting in 2Q23, once the majority of major central banks likely complete their tightening measures
