Malaysian government bond yields were largely lower this week despite renewed global market volatility, as investors balanced concerns over Middle East tensions, US monetary policy and domestic economic developments, according to Kenanga Investment Bank.
The research house said yields on Malaysian Government Securities (MGS) and Government Investment Issues (GII) moved within a relatively narrow range of between negative 5 basis points and positive 2 basis points during the week.
The benchmark 10-year MGS yield declined 1.3 basis points to 3.56%, while the 10-year GII yield eased 0.5 basis points to 3.604%.
Kenanga noted that local bond markets remained resilient despite heightened geopolitical risks stemming from fragile negotiations between the United States and Iran, as well as ongoing disruptions to energy flows through the Strait of Hormuz.
The uncertainty has kept oil prices elevated and fuelled concerns over global inflation, prompting investors to reassess expectations for interest rates.
At the same time, growing expectations that the US Federal Reserve will maintain a restrictive monetary policy stance have supported higher global bond yields, limiting the extent of declines in Malaysian yields.
“Local yields remained relatively stable despite renewed global volatility,” Kenanga said.
On the domestic front, investor sentiment was weighed by softer economic indicators, with Malaysia’s manufacturing Purchasing Managers’ Index (PMI) slipping to 49.9 in May, signalling a slight contraction in manufacturing activity.
Market participants also remained cautious over uncertainty surrounding a proposed US Section 301 tariff on Malaysian exports, although external developments continued to be the primary driver of bond market movements.
Foreign investor sentiment weakened during the month, with government bonds recording net outflows of RM6.7 billion in May.
Meanwhile, Bursa Malaysia experienced RM3.6 billion in foreign equity outflows, partly due to MSCI index rebalancing activities and defensive investor positioning amid global uncertainties.
Looking ahead, investors will focus on upcoming domestic economic releases, including labour market data, industrial production figures and retail sales numbers, for further clues on the strength of Malaysia’s economy.
Attention will also remain on developments surrounding the proposed US tariff measures and the upcoming Johor state election.
Globally, market direction is expected to be driven by US inflation data, labour market indicators and the progress of US-Iran negotiations.
Kenanga expects Malaysian bond yields to remain broadly range-bound in the near term, supported by stable domestic conditions. However, the research house cautioned that external risks, particularly geopolitical tensions and global interest rate expectations, continue to pose an upside risk to yields.
