Following three consecutive months of net selling, foreign investors turned net buyers of Malaysian bonds in March. Foreign holdings of ringgit bonds climbed RM1.7 bil, led by MGS and GII (+RM2.2 bil). RAM rating noted the renewed interest comes amid improved market sentiment after March’s Federal Open Market Committee meeting at which the Federal Reserve (Fed) signalled it would still lower interest rates this year. The market also took a positive cue from the March dot-plot which indicated three 25-bps cuts in 2024, unchanged from projections released in the prior quarter.
In line with a more dovish Fed and heightened investor demand, bond yields exhibited a broad-based decline in March. The benchmark 10-year UST and MGS yields respectively decreased 5 bps and 0.5 bps m-o-m to 4.20% and 3.88% as of the end of March.
That said, RAM said the sentiment took a sharp turn this month as investors slash rate cut bets in the face of a surprise uptick in inflation data and some hawkish messaging by the Fed Chair in response to it. The market-assigned probability of a rate cut in June and July plummeted to around 17% and 45%, respectively, on 16 April from circa 60% and 77% as at end-March, according to CME FedWatch Tool data. Given the market selloff, the 10-year MGS yield rose to 3.98% as of 19 April while the ringgit depreciated to 4.78 against the US dollar. Foreign appetite for Malaysian bonds is expected to take a hit in the near term, potentially resulting in the outflow of foreign funds resuming this month.
