Both the Malaysian Government Securities (MGS) and Government Investment Issues (GII) yields edged higher this week as investors remained cautious amid domestic political developments, although resilient economic fundamentals helped limit the upward movement.
Kenanga Research said MGS and GII yields moved within a range of between -2.5 basis points and 2.9 basis points during the week.
The benchmark 10-year MGS yield rose 0.8 basis points to 3.722%, while the 10-year GII yield increased 1.4 basis points to 3.723%.
Despite the cautious market sentiment, Kenanga said resilient domestic fundamentals continued to provide support for the local bond market.
Demand was particularly strong at the reopened five-year Malaysian Government Islamic Issue (MGII) 10/31 auction, which recorded a bid-to-cover ratio of 2.40 times, reinforcing constructive sentiment towards domestic bonds.
Improving economic indicators also supported the market, with Malaysia returning to manufacturing expansion and expectations of positive second-quarter 2026 economic growth helping to underpin investor confidence.
Meanwhile, progress towards a diplomatic resolution between the US and Iran helped ease concerns over global energy prices, limiting further upward pressure on domestic bond yields.
Foreign investors remained marginal net buyers of Malaysian government bonds last week, recording RM100 million in net inflows.
Kenanga said the continued foreign demand reflected steady investor interest in Malaysian government bond duration despite prevailing external uncertainties.
Looking ahead, the research house expects domestic bond yields to remain range-bound as resilient growth fundamentals and stable inflation offset external risks.
Investors are expected to closely monitor upcoming second-quarter 2026 gross domestic product, industrial production, labour market and retail sales data for further indications of the strength of Malaysia’s economic recovery.
On the global front, developments in West Asia, together with upcoming US labour market and inflation data, will remain important drivers of interest-rate expectations and could influence the direction of domestic bond yields.
Kenanga said the balance between Malaysia’s resilient economic fundamentals and external uncertainties would likely keep the local bond market relatively stable in the near term.
