MGS and GII yields increased this week, moving between 0.3 bps to 5.4 bps overall. The 10Y MGS yield initially fell by 0.6
bps to 3.717% on June 13, before rising to 3.738% by yesterday (+1.5 bps).
Domestic bond yields returned to an uptrend following the US FOMC meeting, given the Fed’s relatively hawkish outlook
despite the decision to keep rates unchanged for the time being. Meanwhile, foreign demand for domestic bonds remained
surprisingly resilient in May, recording greater foreign inflows (RM3.0b; Apr: RM1.5b) despite global risk-off sentiment over
the US debt ceiling and Fed hawkishness. Domestic yields may trend rangebound-to-higher next week, finding some stability following the Fed’s rate skip but likely to be steered by higher global bond yields after the ECB raised rates by 25 bps.
Foreign demand for domestic bonds is expected to be slightly subdued in June, amid relatively low yield spreads against
developed market bonds. However, foreign inflows could gain momentum in 2H23 as global risk aversion eases following the
Fed’s decision to keep rates unchanged, with further upside potential if the Fed ceases rate hikes for this cycle. That said,
there is some risk of foreign outflows should the Fed resume rate hikes in the coming months.
