MGS and GII yields mostly fell this week, moving between -6.3 bps to 1.1 bps overall. The 10Y MGS yield increased slightly by 0.8 bps to 3.809%, whilst the 20Y MGS yield decreased by 6.3 bps to 4.143%.
Domestic bonds benefitted from lower global bond yields early in the week and were buoyed by BNM’s statement that it would intervene in the foreign exchange market to stabilise the ringgit. Investment house Kenanga expects domestic yields to return to an uptrend next week, as cautious sentiment returns amid surging US Treasury yields and the release of key US inflation data.
Foreign demand for domestic bonds may be weak in the near-term amid poor risk sentiment, a weak ringgit, and unattractive yield differentials against developed market bonds; the 10Y MGS-UST yield spread is currently
negative (-2.9 bps; previous week: 0.6 bps). Likewise, Fed Chair Jerome Powell continued to signal a hawkish stance following strong US economic data, raising bets of further rate hikes in the coming months.
The house still believes foreign demand could chart a strong recovery towards the end of 3Q23 after it is certain that the Fed’s hiking cycle is complete.
