Renewed foreign interest seen in Malaysian bond market in February

KUALA LUMPUR, March 18 (Bernama) -- The Malaysian bond market broke a three-month streak of outflows in February with renewed foreign interest that was largely attributable to the US Federal Reserve’s (Fed) more dovish stance, RAM Rating Services Bhd said.

Foreign holdings surged RM4.5 billion for the month following the Fed's monetary policy statement released on Jan 30, the rating agency said in a statement today.

The Fed left interest rates unchanged during the Federal Open Market Committee meeting in January. In its monetary policy statement, it stated it would be “patient” on further interest rate hikes in contrast to its earlier message of “further gradual increases”.

“Portfolio outflow pressures have been somewhat reduced by the Fed’s more dovish tone and, more recently, the growth concerns expressed by the European Central Bank and the subsequent pause in elevating policy rates,” said RAM head of research, Kristina Fong.

However, she added, there might still be a flight to safety, especially as the US-China trade spat and Brexit dynamics had yet to be resolved.

RAM said given the more robust demand amid renewed foreign interest and resilient domestic support,  the yields to maturity of government and corporate bonds declined month-on-month across the rating spectrum.

It said the yield of the benchmark 10-year Malaysian government securities (MGS) dived in the first half of February, falling below the psychological level of 4.0 per cent on Feb 13, the first time since April 11, 2018.

“Moving forward, yields are expected to face some further downward pressure as the market is also considering the prospects of an overnight policy rate cut by Bank Negara Malaysia, following the central bank’s more cautious tone in its latest monetary policy statement (released on March 5),” it said.

RAM said government bond issuance was healthy in February, amounting to RM8.0 billion,  underpinned by robust appetite for government bonds, as indicated by the bid-to-cover (BTC) ratios.

The 10-year MGS and 15-year Government Investment Issues in February achieved very strong BTC ratios of 2.54 and 3.91 times, respectively.

It added that issuance of corporate bonds summed up to RM9.1 billion for the month (January: RM5.8 billion), backed by healthy issuance from both the quasi-government and private sectors.

-- BERNAMA