MGS and GII yields continued to increase this week, moving between 1.9 bps to 21.1 bps across the curve. The 10Y MGS
yield rose by 6.4 bps to 3.798%, its highest level in a month, whilst the 20Y MGS yield increased by 21.1 bps to 4.141%.
Local sovereigns were pressured by a weaker ringgit, broader global risk-off sentiment, and ongoing developments in the US, namely the increasingly concerning debt ceiling impasse and the growing possibility of a further rate hike by the Fed.
Kenanga says it expects domestic yields to remain on an uptrend next week, mostly steered by a continued rise in US Treasury yields and amid weak foreign demand for local bonds. Focus will also be on CPI release for April (KIBB: 3.3%; Mar: 3.4%).
Foreign inflows into the domestic bond market will likely remain weak in the near term, underpinned by strong global
risk aversion as the US debt ceiling remains a widespread concern, which may worsen should the June 1 deadline pass
without an agreement. Govvies will also be weighed by their relatively low yields following a surge in developed market
bond yields; the 10Y MGS-UST spread has turned negative (-1.9 bps; previous week: 8.8 bps) for the first time in three
months.
