KUALA LUMPUR (July 27): Local corporate bond yields are expected to resume an uptrend in the coming months, but will subsequently head south as recessionary pressures come into play, said Malaysian Rating Corp Bhd (MARC) chief economist Firdaos Rosli.

Moreover the outlook for corporate earnings is clouded by rising inflation, which will perhaps impede consumer consumption growth as well, Firdaos said at the MARC Malaysian Bond & Sukuk 2022 virtual conference.

“Growth headwinds abound in 2H2022. Monetary policy tightening attracts here-and-now volatility, exacerbated by concerns about a global economic slowdown.

“Expect the unexpected when global bond yields continue to rise, but slower, while the yield curve flattening persists,” he said.

Bank Negara Malaysia has twice raised the overnight policy rate (OPR) to 2.25% currently, albeit with a narrowing gap with the Fed Funds Rate (FFR) which has contributed to the bond sell-off.

However, Malaysia’s real interest rate is still negative suggesting an ample policy space for BNM to increase the OPR, which Firdaos sees settling at 2.75% by year end.

Contrary to net foreign inflow of RM6.1 billion in Malaysian equities year-to-date, the local bond market recorded net foreign outflow of RM3.23 billion, compared with net foreign inflow of RM24.5 billion in 1H2021, on the back of monetary policy tightening and global sentiments.

Firdaos also noted one trend in the capital market. “In recent years, foreign inflows into the Malaysian capital markets rarely moved in the same direction.

“But when they did, it was never northward."