Thursday 28 Mar 2024
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KUALA LUMPUR (May 26): The Malaysian bond market registered a net outflow of foreign funds for a second successive month in April, noted RAM Ratings in a Thursday (May 26) report. 

RAM Ratings said that the net outflow of foreign funds in the bond market amounted to RM2.2 billion in April and the overall net outflow last month was slower than the RM4 billion sell-off seen in March. 

Consequently, the cumulative foreign fund flow year-to-date fell to RM379.6 million, it added.

It also noted that foreign selling was concentrated in Malaysian Government Securities (MGS) and Government Investment Issues at RM2.6 billion. 

“However, foreign investors remained interested in short-term government securities (Malaysian Treasury Bills and Malaysian Islamic Treasury Bills) for the third consecutive month, recording RM905.6 million in net purchases,” RAM Ratings said. 

It pointed out that the continued bond sell-off in April can be largely attributed to investors being on edge in anticipation of a more aggressive monetary policy stance by the US Federal Reserve (Fed) in the May Federal Open Market Committee meeting. 

“In line with market expectations, the Fed delivered a 50-basis point (bps) interest rate hike on May 4. The Fed also announced it would start paring down its balance sheet from June onwards to significantly reduce securities holdings accumulated under the aggressive bond purchase programme instituted amid the [Covid-19] pandemic.

“As a result, bond yields surged broadly across the board. Yields of 10-year US Treasury (UST) securities and MGS respectively jumped 57bps and 48bps month-on-month to 2.89% and 4.32% as of end-April. The uptrend generally persisted in the first half of May, with yields of these securities climbing further to 2.93% and 4.43% respectively as of May 13,” it said.

“This trend somewhat reversed last week as 10-year UST and MGS yields respectively fell to 2.78% and 4.35% as of May 20 as investors sought shelter from the US equity market sell-off. While the UST-MGS yield spread narrowed again to an average of 135bps in April (March: 159 bps), a surprise overnight policy rate hike on May 11 helped push MGS yields up,” it noted. 

This saw the spread widen to around 150bps immediately following the policy rate increase, RAM Ratings said. 

“The slight improvement in yield differential may support foreign interest in MGS in the near term,” it added. 

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