Malaysian government bond yields moved higher across the curve, with Kenanga Research expecting yields to remain rangebound but with risks tilted to the upside as investors weigh softer domestic manufacturing data, geopolitical tensions and the possibility of further monetary tightening.
Kenanga said Malaysian Government Securities (MGS) and Government Investment Issues (GII) yields rose by between 0.7 basis points and 11.3 basis points over the week.
The benchmark 10-year MGS yield climbed 7.8 basis points to 4.030%, while the 10-year GII yield rose 9.7 basis points to 4.053%.
The research house attributed the move to relatively soft demand at a government bond auction, weaker manufacturing activity and rising geopolitical uncertainty.
The 30-year MGII 1/56 auction recorded a bid-to-cover ratio of 2.01 times, below this year’s average of about 2.32 times, while Malaysia’s manufacturing PMI slipped back into contraction at 49.9 in September.
Kenanga said escalating US-Iran tensions, additional sanctions and shipping disruptions had also increased uncertainty around global trade and energy markets, outweighing positive factors including Malaysia’s sovereign rating, regional trade prospects and fiscal support.
Attention will now turn to Budget 2027, which is scheduled to be tabled in Parliament on Oct 9, for indications of the government’s fiscal priorities and spending direction.
Investors will also be watching upcoming industrial production, labour market and retail trade data for further indications of Malaysia’s growth momentum.
Kenanga expects MGS yields to remain broadly rangebound, although it sees greater risk of yields moving higher.
The research house now expects Bank Negara Malaysia to keep the Overnight Policy Rate unchanged in November before raising it once in the first quarter of 2027. BNM kept the OPR at 2.75% in September, while its next Monetary Policy Committee decision is scheduled for Nov 5.
Kenanga said expectations of another Federal Reserve rate increase in the fourth quarter, along with a perceived shift in BNM’s September policy tone, support the upward bias in yields.
However, steady foreign bond inflows and a relatively firm ringgit should help limit the increase.
Kenanga added that a further escalation in US-Iran tensions or a more expansionary-than-expected Budget 2027 could exert additional upward pressure on Malaysian government bond yields.
