(Updated)

BNM: MGS daily trade value spikes to RM1.5b, yield jumps 15 bps after US rate hike

BNM: MGS daily trade value spikes to RM1.5b, yield jumps 15 bps after US rate hike
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KUALA LUMPUR (Sept 23): In a rare occurence, the trade value of the seven-year Malaysian Government Securities (MGS) spiked to RM1.5 billion on Thursday (Sept 22), from RM32 million a day earlier, Bank Negara Malaysia's (BNM) latest update showed, as the bond's trading yield jumped 15 basis points (bps) as global markets took their cue from higher US interest rate prospects to fight inflation, and as investors evaluated the possibility of an escalation of the Russia-Ukraine war.

Investors on Thursday sold MGS after the US announcement on Wednesday of a 75 bps hike in interest rates to between 3% and 3.25%, and following news that Russia President Vladimir Putin on Wednesday ordered Russia's first military mobilisation since World War Two and backed a plan to annex swathes of Ukraine, which Russia had invaded since Feb 24.

Such sentiments led to depreciation of world currencies, including the ringgit, against a strengthening US dollar, which saw higher demand from investors seeking higher returns from US interest rate hikes and as they sought safety in the greenback, which is deemed a haven in times of geopolitical uncertainties.

According to BNM, the seven-year MGS, which matures in April 2029 and pays an annual coupon rate of 4.504%, saw its trading yield closed up 15 bps at 4.22% on Thursday, after reaching an intraday low of 4.2% and high of 4.28%.

BNM, the facility agent for the reissuance of the RM5 billion MGS scheme, which was originally issued on April 29, 2022, had invited investors' bids for the securities between Tuesday and Thursday.

According to BNM, investors had placed bids amounting to RM8.31 billion for the RM5 billion MGS scheme, which was reissued on Friday.

On Thursday, Maybank Investment Bank Bhd analysts wrote in a note that the combined bid value at RM8.31 billion for the RM5 billion MGS was lower than the average of around RM10 billion for seven-year and ten-year conventional MGS and Islamic-compliant Government Investment Issues (GII) auctions year-to-date.

"MGS opened with selling pressure in the morning (on Thursday) which pushed yields higher by 2 bps to 5 bps," they said.

BNM is mindful of the weakening ringgit against a strengthening US dollar as the exchange rate breached 4.57 on Friday.

In a statement on Friday, BNM said it continues to closely monitor and ensure orderly financial market conditions amid external developments that have led to persistent strength in the US dollar against almost all currencies, including the ringgit.

The US dollar has strengthened significantly due to aggressive monetary policy tightening in the US, according to BNM.

"Ringgit movements will continue to be market determined. The foreign exchange (FX) market continues to function and intermediate effectively. Daily onshore FX transaction volume has been increasing throughout, reaching a current average of US$13.3 billion (RM60.89 billion) against US$11.3 billion in 2021, amid two-way flows.

"Bond market activity remains healthy, well supported by institutional investors and financial institutions. BNM’s market operations will ensure sufficient liquidity and orderly functioning of financial markets," BNM said.

Chong Jin Hun