Malaysian Government Securities (MGS) and Government Investment Issues (GII) yields are expected to edge lower in the near term as investors position for Bank Negara Malaysia (BNM) to maintain its benchmark interest rate amid resilient domestic economic conditions, according to Kenanga Investment Bank.
In a fixed income market note, Kenanga said MGS and GII yields were mixed during the week, moving between 2.2 basis points lower and 0.3 basis points higher.
The benchmark 10-year MGS yield eased marginally by 0.1 basis point to 3.63%, while the 10-year GII yield rose 0.3 basis point to 3.621%.
The research house said domestic bond yields remained largely range-bound with a slight downward bias, as weakness following a softer government bond auction was offset by improving economic indicators.
Although the recent 10-year MGS auction recorded relatively subdued demand, with a bid-to-cover ratio of 1.87 times, stronger manufacturing activity helped support market sentiment.
Malaysia’s manufacturing sector returned to expansion in June, with the Purchasing Managers’ Index (PMI) rising to 50.7, signalling improving business conditions and strengthening confidence in the country’s economic outlook.
Kenanga said longer-term growth prospects also continued to be underpinned by structural initiatives such as the Malaysia Digital 2030 roadmap and the SemiconStart Malaysia programme, alongside sustained investments into the electrical and electronics (E&E) sector.
These developments have helped anchor medium-term growth expectations and limited further declines in bond yields despite intermittent supply pressures from government debt issuance.
On investor flows, foreign investors turned modest net sellers of Malaysian government bonds last week, recording net outflows of RM200 million.
However, overseas investors remained net buyers on a month-to-date basis, with cumulative inflows amounting to RM6.6 billion as of June 26.
Meanwhile, foreign investors continued to reduce exposure to Malaysian equities, extending their selling streak to a seventh consecutive week with net outflows of approximately RM600 million.
Looking ahead, Kenanga expects market attention to focus on BNM’s upcoming Monetary Policy Committee (MPC) meeting, where the central bank is widely anticipated to keep the Overnight Policy Rate unchanged.
The research house said investors are likely to position for a stable policy outlook, while upcoming releases of industrial production, labour market and retail trade data are expected to reinforce the narrative of continued domestic economic resilience.
Kenanga believes stable macroeconomic fundamentals, coupled with expectations that the US Federal Reserve will maintain an extended pause in interest rate hikes, should continue supporting demand for Malaysian government bonds.
As a result, both MGS and GII yields are expected to drift modestly lower over the coming weeks.
