Yields of Malaysian government securities (MGS) are expected to tread lower due to rising risk appetite, according to Affin Hwang Research.

“With the European Central Bank's quantitative easing being digested, the persistent risk appetite is slowly being built up,” Affin said in its research note today. It observed that traders are using this opportunity to undertake “tactical long trading positions as net supply of govvies are likely to be lower, coupled with lower inflationary expectations”.

Some offshore traders could be going long on MGS versus US treasuries as a spread trade, as current spreads are historically very wide, it opined.“ We envisage the duration to be extended currently as some funds are underinvested,” Affin Hwang said.

The research house noted that a rebalancing of certain indices had brought down the yields of Thai and Indonesian 10-year benchmarks by 40bps to 60bps of late. It also noted that the govvie market volume was high yesterday, with RM4.88 billion worth of securities traded despite the ringgit softening 195 points to 3.6200.