Government bond yields were mostly lower this week, supported by easing geopolitical concerns, improving market sentiment and sustained demand for longer-duration securities.
Kenanga said yields for Malaysian Government Securities (MGS) and Government Investment Issues (GII) declined between 3.2 basis points (bps) and 0.6 bps during the week.
The benchmark 10-year MGS yield fell 1.2 bps to 3.596%, while the 10-year GII yield declined 3.2 bps to 3.601%.
The firm said local bond market performance was supported by reduced inflation concerns following easing geopolitical tensions, particularly after the US-Iran agreement and the reopening of the Strait of Hormuz.
Lower oil prices following the developments helped improve risk sentiment and reduced concerns over renewed inflationary pressures.
“Demand for duration remained strong, providing support for local government bond prices,” Kenanga said.
Domestically, stronger-than-expected economic indicators also boosted investor confidence.
Malaysia’s April Industrial Production Index (IPI) growth accelerated 8.2% year-on-year, exceeding market expectations and reinforcing views that economic activity remains resilient.
Meanwhile, demand at the reopening auction for the 15-year GII was strong, recording a bid-to-cover ratio of 3.41 times.
Kenanga said the strong auction outcome reflected healthy investor appetite for Malaysian sovereign debt.
However, global developments continued to influence local bond markets, with the US Federal Reserve’s more hawkish stance and policy tightening measures by the Bank of Japan placing some upward pressure on global yields.
These pressures were largely offset by supportive domestic fundamentals and steady demand conditions.
Foreign investors returned to Malaysia’s government bond market last week, recording net inflows of RM3.7 billion.
A significant portion of the inflows, amounting to RM3 billion, was recorded on 12 June.
This contrasted with continued foreign selling in the equities market, which extended to a fifth consecutive week.
Looking ahead, investors will focus on Malaysia’s upcoming export and consumer price index (CPI) data for further clues on external demand and inflation trends.
Kenanga expects easing geopolitical risks, stable inflation conditions and continued demand for duration to remain supportive of the local bond market.
While a more hawkish Federal Reserve could introduce periods of volatility through global interest rate movements, the firm expects MGS yields to remain broadly stable or trend slightly lower, supported by resilient domestic fundamentals and favourable supply-demand dynamics.
