By most accounts, February was a brutal month for global bonds as major central banks vowed to keep hiking. But Malaysian securities proved to be a rare exception.
Overseas funds poured US$919 million (RM4.15 billion) into ringgit debt in February in a third month of inflows, central bank data showed. The buying contrasted with outflows recorded by some other regional markets, with foreign investors pulling US$1.1 billion from Thai notes and US$498 million from Indonesian bonds, Bloonberg reported.
Malaysian securities bucked “the regional trend due to attractive US dollar-hedged ringgit yields versus Treasuries and better visibility over Bank Negara Malaysia’s (BNM) peak rate”, said Winson Phoon, the head of fixed-income research at Maybank Securities Pte Ltd in Singapore. Inflows were likely concentrated in short- to mid-dated tenors, he added.
Investors are zeroing in on bonds where borrowing costs are showing signs of peaking as they seek to unearth pockets of buying opportunities in the asset class. Hawkish rhetoric from the US Federal Reserve and the European Central Bank have hammered global debt, with hopes for a policy pivot waning as central banks vow to tame inflation.
BNM is among authorities that have paused their tightening campaign in recent months, fuelling speculation that it may be almost done with raising rates. The central bank left its monetary settings unchanged for a second straight meeting on Thursday (March 9).
Demand for ringgit debt has also been boosted by attractive returns, which helped to offset the damping effect of its three-year yield discount over similar-maturity Treasuries. Malaysia’s three-year government notes offer a yield of 6.1% for investors who hedge against a weak ringgit using three-month currency forwards, compared with 3.5% without hedging.
“US dollar-hedged ringgit yields will remain attractive as long as the wide divergence between BNM and Fed monetary policy continues,” said Maybank’s Phoon.
