Malaysian Government Securities (MGS) and Government Investment Issues (GII) yields moved higher this week as elevated global bond yields, persistent inflation concerns and geopolitical tensions continued to weigh on fixed-income markets.
According to Kenanga Research, MGS and GII yields generally increased by between 1.2 basis points (bps) and 6.4 bps during the week.
The benchmark 10-year MGS yield rose 2.6 bps to 3.605%, while the 10-year GII yield gained 1.7 bps to 3.622%.
Kenanga said local bond yields tracked developments in global markets, where persistent geopolitical uncertainty and elevated crude oil prices kept pressure on sovereign debt markets.
Higher US Treasury yields, supported by resilient US economic data and renewed inflation concerns, continued to spill over into regional bond markets, including Malaysia.
Investors have also increasingly embraced the view that the US Federal Reserve remains focused on combating inflation, reinforcing expectations that interest rates could stay higher for longer.
“The higher-for-longer narrative remains a key theme globally as markets reassess the timing and extent of future US monetary easing,” the research house said.
Despite the upward movement in yields, Kenanga noted that stronger domestic economic fundamentals helped limit the rise in Malaysian bond yields.
Malaysia’s resilient economic growth, healthy export performance and continued confidence in the country’s macroeconomic outlook have provided support for the local fixed-income market.
On the flow front, foreign investor sentiment toward Malaysian assets was mixed.
Foreign investors recorded net inflows of RM700 million into government bonds during the week, reflecting continued interest in Malaysia’s debt market despite global uncertainties.
However, Bursa Malaysia saw net foreign equity outflows of RM300 million as investors remained cautious amid broader risk-off sentiment.
Looking ahead, Kenanga expects market attention to shift towards Malaysia’s upcoming Producer Price Index (PPI) data release, although trading activity may remain subdued ahead of the Hari Raya Aidiladha holidays.
Externally, unresolved tensions between the United States and Iran, together with elevated global bond yields, are expected to continue exerting upward pressure on local interest rates.
Nevertheless, the research house believes stable domestic liquidity conditions and Malaysia’s resilient macroeconomic backdrop should help prevent any sharp sell-off in the government bond market.
“While external developments remain the primary driver of bond market sentiment, supportive domestic fundamentals should continue to cushion MGS against more aggressive yield increases,” Kenanga said.
The research house added that investors are likely to remain vigilant over global inflation trends, US monetary policy signals and geopolitical developments, which will continue to shape bond market performance in the coming weeks.
