Domestic Bond Yields To Rise Following BNM and Fed Hikes

MGS and GII yield movements were mixed this week, moving between -4.6 bps to 2.7 bps overall. The 10Y MGS yield
increased slightly by 1.0 bps to 3.741%.

Local bond yields initially trended lower at the end of last week, likely steered by a sharp downtrend in global bond
yields. However, domestic sovereigns then saw some pressure leading up to BNM’s latest monetary policy meeting and yields spiked following its surprise 25 bps rate hike. The central bank highlighted a positive economic outlook, supported by resilient domestic demand and China’s stronger-than-expected recovery, whilst the risks to inflation remained tilted to the upside.

Kenanga Investment says it expects domestic yields to trend slightly higher next week, driven by the rate hikes by BNM and the Fed. That said, it also reckons both central banks have completed their policy normalisation and envisage no further rate hikes. Foreign demand for domestic bonds may weaken slightly in the near-term as global risk sentiment wanes due to the renewed banking crisis in the US. The banking sector has come under strain once again after US regulators seized First Republic Bank and sold its assets to JP Morgan, with other banks also showing signs of stress. Markets are concerned over a heightened risk of a US recession exacerbated by the regional banking crisis

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