Global bond markets underwent a beatdown last month, led by long-dated papers, in reaction to global interest rates possibly staying higher for longer than previously expected. Contrary to market bets, the US Federal Reserve (Fed) not only maintained its expectations of one more 25 bps hike by end-2023, but also revised its interest rate forecast for 2024 and 2025 upwards. The Fed now projecting only two 25 bps rate cuts in 2024 as opposed to the four projected in June.
The higher interest rate expectations led to a sharp unwinding of positions. RAM says Bond offloading was particularly acute on the long end; 10-year UST yields surged 50.0 bps m-o-m to 4.59% as of end-September 2023, the highest level since September 2007. The MGS yield curve also bear steepened last month, with the 1-year and 10-year MGS yields respectively rising 3.8 bps and 13.4 bps m-o-m to 3.30% and 3.98% as of end-September. The Ratings agency said the weak sentiment led to a foreign investor selldown of Malaysian bonds for the second consecutive month in September, led by MTB/MITB (RM4.5 bil) and MGS/GII (RM78.9 mil).
While the bear run persisted into the first week of October (average 10-year yield for UST: 4.75%; MGS: 4.06%), a slight reprieve was seen the following week as yields started to retreat (average 10-year yield for UST: 4.64%; MGS: 4.04%).
