Malaysian Government Securities (MGS) and Government Investment Issues (GII) rallied sharply across all tenors, with yields plunging between 4.5 basis points and 28.9 basis points as clear policy signals from the US Federal Reserve rekindled duration demand.
According to a fixed-income market report by Kenanga Investment Bank, the benchmark 10-year MGS yield plummeted 26.7 basis points to settle at 3.917 percent, while the 10-year GII yield dropped 21.4 basis points to 3.939 percent.
The sharp reversal lower in MGS yields followed the Federal Open Market Committee’s (FOMC) anticipated 25-basis-point interest rate hike, which effectively eliminated immediate policy uncertainty and encouraged investors to re-engage in duration buying.
A combination of favorable macroeconomic and structural catalysts further supported local bond sentiment: Brent crude prices softened after Saudi Arabia partially restored capacity on its East-West pipeline, mitigating immediate global energy inflation fears. Malaysia’s August export figures surged 45.5 percent year-on-year, reinforcing the resilience of domestic macroeconomic fundamentals. Strategic support was bolstered by the bilateral swap arrangement with Japan alongside ongoing initiatives promoting local currency settlement frameworks and expanded market access in India. The Malaysian government expanded its electricity tariff relief threshold for domestic consumers, helping anchor domestic inflation expectations and prompting renewed buying along the sovereign yield curve.
Despite the local bond market rally, foreign capital flows remained under pressure. Foreign investors turned net sellers of Malaysian debt, withdrawing RM2.0 billion from the bond market over the past week. Foreign institutional investors also maintained net outflows from Bursa Malaysia, offloading RM160.3 million in equities.
Looking ahead, Kenanga projects domestic yields to trade within a rangebound corridor due to an absence of immediate domestic catalysts. Investor focus is expected to remain squarely on international developments, including the evolving geopolitical situation between the US and Iran, as well as the upcoming bilateral meeting between US President Donald Trump and Chinese President Xi Jinping. Any diplomatic progress or trade breakthroughs could reduce global duration demand.
In contrast to the MGS rally, US Treasury (UST) yields posted mixed movements across the curve, shifting between a decline of 2.7 basis points and an advance of 11.8 basis points. The 10-year UST yield rose 2.9 basis points to 4.996 percent, while the policy-sensitive 2-year UST yield climbed 11.8 basis points to 4.743 percent.
The upward drift in UST yields reflected lighter pre-hike positioning ahead of widely expected rate decisions by the Federal Reserve and the Bank of Japan. Stronger-than-expected August US retail sales and an unexpected dip in initial jobless claims suggested that US borrowing costs could remain elevated for longer. Softer crude oil prices helped cap steeper yield gains.
Kenanga anticipates US Treasury yields to trade in a tight range as markets await fresh labor indicators, including ADP employment metrics and weekly jobless claims, alongside updated Federal Reserve guidance. While geopolitical risks will keep bond markets volatile, Kenanga maintains its baseline projection that the recent Fed rate increase represents the final move of the current tightening cycle, expecting US monetary policy rates to stay unchanged through the end of 2027.
