KUALA LUMPUR (July 18): RAM Rating Services Bhd said foreign investors returned to the Malaysian bond market in June after two months of net selling, which it attributed to the increasing dovishness of central banks in major economies.

The ratings agency said the dovishness came amid weaker-than-expected economic data.

"In line with the downward bias in global interest rates and the subsequent search for yields, domestic bond yields also retreated across the entire maturity spectrum and rating bands in June," it said in a statement.

Demand was strong in both the secondary and primary markets amid robust bid-to-cover (BTC) ratios at government bond auctions last month, with two issues that were up for tendering achieved BTC ratios of above two times.

RAM said that demand for the 20-year government investment issue (GII) achieved a strong BTC ratio of 4.28 times, while the five-year Malaysian government security (MGS) recorded 2.48 times.

For the month of July, RAM expects yields to continue facing downward pressure, following another clear sign of a rate cut from US Federal Reserve (Fed) chairman Jerome Powell's remarks to Congress on July 10 and another speech at a Paris event the following week.

Powell had reaffirmed the Fed's concerns about economic prospects and was ready to take appropriate measures to maintain the recovery momentum of the US economy.

This has prompted the market to price in a potential 50-basis-point cut, said RAM.

"There is a multitude of considerations for portfolio investors at this point — whether to pursue yields or seek safety in more conservative assets. As particular factors may dominate at different times, depending on prevailing market developments, volatile capital flows are envisaged to remain a key trend this year," said RAM head of research Kristina Fong.