MGS and GII yields fell this week, moving between -9.8 bps to -2.7 bps overall. The 10Y MGS yield decreased by 9.5 bps
to 3.703%, its lowest level in two weeks, whilst the 3Y MGS yield decreased by 3.1 bps to 3.398%.
Domestic yields were steered by a sharp decline in global bond yields following the resolution of the US debt ceiling impasse. Sovereigns may have also benefitted from domestic safe-haven demand after May’s Manufacturing PMI fell to 47.8 (Apr: 48.8), raising some concerns over declining demand and Malaysia’s growth outlook.
Kenaga said it expects domestic yields to trend slightly lower next week, as US Treasury yields continue to fall and on a potential return of foreign interest in local bonds. Foreign demand for domestic bonds may remain relatively tepid in the near-term, amid some risk aversion ahead of the US FOMC meeting but should show signs of improvement following progress on the US debt ceiling.
The house said it that Govvies will also find support from improving yield differentials against developed market bonds, with the 10Y MGS-UST spread returning to positive territory this week (10.8 bps; previous week: -1.9 bps).
