This article first appeared in The Edge Financial Daily, on April 20, 2016.

KUALA LUMPUR: Foreign holdings in Malaysian bonds of RM226.6 billion in March broke November 2014’s record and rose 5.4% from the month prior, on increased investment in government securities, said RAM Rating Services Bhd.

This figure was also 6.2% higher from March last year.

In its Bond Market Monthly report yesterday, RAM said foreigners’ appetite for Malaysian capital securities heightened as the ringgit stabilised over the past few months and the uncertainties surrounding the US Federal Reserve’s rate increase evaporated.

“Furthermore, the increased inflow of foreign funds in the first quarter of 2016 was supported by the introduction of negative interest rates in major markets such as the European Union and Japan, coupled with the recovery in oil prices towards the end of March,” the rating agency said.

“The yields of government securities and corporate bonds declined across the entire maturity spectrum and rating bands, as demand for domestic bonds improved. In tandem with the lower yields, the yield curves of Malaysian government securities (MGS) and corporate papers shifted downwards month-on-month,” it added.

RAM noted that the stronger demand for MGS was also reflected in the above-average bid-to-cover ratios for all three government papers tendered and issued in March. This is despite the government debt issuance increasing to RM10 billion in March, from RM8.5 billion the month before. “On the contrary, private debt securities (PDS) issuance moderated to RM5.2 billion following the robust RM11.3 billion of issuances the preceding month.

“Cumulatively, RM18.6 billion of PDS issues were offered in the first quarter of 2016, about 69.1% higher than the RM11 billion in the first quarter of 2015,” RAM said.

It also said the big on-year jump was because of a low base effect. The quasi-government side of issuance more than doubled while corporate issuances grew by 42.5%. Most of the corporate issues so far in 2016 have come from the diversified holdings sector, RAM said. But the rating agency is expecting foreigners’ appetite for Malaysia’s fixed-income securities to ease in the next few months. What could be argued as a huge rally was more of a correction arising from the volatility in 2015.

“Moreover, the markets may turn volatile again in the lead-up to major moves such as the UK’s Brexit decision as well as the Federal Open Market Committee and the Organization of the Oil Exporting Countries meetings in June,” RAM said.