Malaysia 10-year MGS yields fall to record low

-A +A

KUALA LUMPUR (July 22): The 10-year Malaysian Government Securities (MGS) yields have fallen to a record low of 2.63%, after the nation registered in June 2020 its highest net foreign inflow in six years since May 2014.

Bank Negara Malaysia said on its website that trading yields for the 10-year MGS maturing in August 2029, fell one basis point to close at 2.63% yesterday (July 21).

Today, Malaysian Rating Corp Bhd (MARC) wrote in a note that in June 2020, Malaysia’s foreign bond holdings expanded by RM11.6 billion to RM198.9 billion on the back of the highest recorded net foreign inflows since May 2014 at RM13.5 billion.

"Consequently, the total foreign share of outstanding local bonds as of end-June stood higher at 12.8% (May: 12.2%). Most of the foreign inflows (67.2%) had gone into MGS. As a result, foreign MGS holdings rose to RM156.9 billion (May: RM149.1 billion), or 37.3% of the total outstanding (May: 35.9%).

"Global accommodative monetary policy, together with Malaysia’s subdued inflation outlook, had fuelled the foreign demand. Despite international agencies’ recent downgrade of Malaysia’s economic and rating outlook, foreign investors had continued to add local bonds to their portfolios. This is not surprising given that the 10-year MGS, compared to its ASEAN bond counterparts of similar international rating bands and below, offered the highest real yield YTD.

"MGS yields had initially surged during the first week of June after the additional RM10 billion of economic stimulus measures fed into concerns of a wider fiscal deficit and higher debt in 2020. However, the yields began pulling back in the following weeks as bargain-hunting activities ensued. MGS also gained from the slew of disappointing domestic economic data releases in the final week of June, which eventually led to the 25bps cut in the Overnight Policy Rate on July 7 to 1.75%. It is noteworthy that at the time of writing, the 10-year MGS was last quoted at a historical low of 2.63%,” MARC said.

Singapore-based RHB Asset Management Pte Ltd head of fixed income Ng Khim Hau said today massive injections of liquidity into the global financial system will maintain the low yield environment for bonds across the board

Ng, who was speaking at a webinar hosted by RHB Group Asset Management today, said given the current weak economic outlook globally, most economies have started injecting fiscal stimulus while central banks cut policy rates to provide support and boost demand.

He said that with low economic growth, inflation will remain manageable, hence, supporting the fixed income environment.

“Inflation will not be a concern in the near term at all. The key reason is the Covid-19 situation is not in control, (hence) the economic outlook is not great. I will only start to worry (about) or start to factor in inflation when I start to see economic activities across the board start to pick up,” he said.