MGS and GII yields increased this week, moving between 3.2 bps to 6.6 bps overall. The 10Y MSG yield rose by 6.2 bps
to 3.863%, whilst the 3Y MGS yield rose to a three-week high of 3.488% on August 1.
Domestic bond yields were steered by the sizeable increase in global bond yields following the Fed and ECB’s rate hikes.
Daily trading volume for government bonds edged higher to RM3.6b so far this week (last week: RM3.5b). Local bond yields may continue to trend higher next week, driven by the rapid rise in UST yields and following the BoE’s 25 bps rate hike. On the domestic front, attention will be on IPI for June, which we expect will contract due to a high base effect (KIBB: -3.3%; May: 4.7%).
Investment house Kenanga says it expects foreign portfolio inflows into the domestic bond market to sustain in the near-term, benefitting from China outflows and as foreign investors look to secure peak yields in Malaysia given the end of BNM’s policy normalisation. Global risk sentiment should improve going forward, bolstering risk assets, as the US Fed and other major central banks reach the end of their tightening cycles, whilst the US looks increasingly likely to avoid a recession.
