MGS and GII yields mostly decreased this week, moving between -3.5 bps to 1.9 bps overall. The 10Y MSG yield fell by 3.0 bps to 3.833%, whilst the 30Y MGS yield increased by 1.2 bps to 4.249%.
Domestic bond yields were partly steered by a downtrend in global bond yields, with demand for US Treasuries recovering
following last week’s sharp sell-off. That said, daily trading volume for government bonds declined to RM2.7b so far this week (last week: RM3.6b).
Kenanga opines that the local bond yields may continue to trend lower next week, in line with a downtrend in UST yields, and as focus shifts to the release of 2Q23 GDP data on Aug 18 (KIBB: 6.0%; Consensus: 3.5%; 1Q23: 5.6%). With strong foreign demand for Malaysian bonds and the end of BNM’s policy normalisation, we still expect the 10Y MGS yield to trend broadly lower for the rest of this year. However, we have adjusted our end-2023 forecast to 3.65%, from 3.60% previously, in response to the uptick in UST yields.
Foreign demand for domestic bonds should sustain for the remainder of the year as the Fed and other major central banks
reach the end of their tightening cycles, prompting a strong transition towards risk-on sentiment. The local bond market
remains poised to capitalise from foreign outflows away from China, alongside expectations that the ringgit will strengthen
going forward. Furthermore, the house does not expect the local state elections to have a material impact on bond flows.
